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Firm - shareholder?

CA J.Jayaprakash (Senior Officer (Finance)) (273 Points)

22 May 2013

Dear Professionals,

Can a Partnership Firm become a Shareholder of a Company in its own name?
Please provide me a reply with the relevant section.
The matter is very urgent.

Thanks in Advance...

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1 Replies

Nitin kumar kaushik (acs) (44 Points)
Replied 22 May 2013

ho sakte hain and proof ke liye read kar le sara

Section 41, Sub-Section (2) of the Companies Act, 1956 (Act) provides that a person who has agreed in writing to become a member and whose name is entered in the register of members shall be a member of the company. The provision speaks of ‘person’. An ordinary effect of the use of this expression is that only a person can become a member. Since a person means a natural person or a corporation, the question arises whether a partnership firm, which is not a person, can be a member. This was the question before the Calcutta High Court in Bansidhar Durgadutt vs CIT [1975 Tax LR 900 (Cal)]. A partnership firm was allotted certain shares and its name was registered in the register of members of the company. The Income tax authorities refused to recognize this as a valid allotment for tax purposes. The court over-rule d the objection and held that the allotment in favour of the Firm is not inoperative. The Court [at page 906]: “It appears that shares that when the shares are registered in the name of the firm such registration in effect would render all Partners as joint holders of the shares. In Palmer’s Company Law, (51-04, p. 802,24^th ed. 1987) it is said: “A firm can be registered in England under its partnership name although it’s not a legal entity. That as a Scottish partnership is regarded as a legal entity can be registered, under its firm name is not remarkable.” Similar observations have also been made in Buckley’s Companies Act, 75 (12^th edn). In Halsbury’s Laws of England, 109 (3^rd edn.Vol VI Art 227), it is observed that “if a firm with the authority of the firm, has subscribed to the memorandum the partners are joint holders of the shares subscribed for. Therefore it cannot be said any such registration is tainted with any illegality so as to vitiate it. Neither such registration is void, nor can it be treated as non est”. In practice, however the articles of association of most companies provide that only individuals, companies provide that only individuals, companies and registered associations will be accepted as members. The madras High Court held in Seth Mengraj v SMES Corporation, (1960) 2 Mad LJ 46 (Notes) that a partnership firm could not be a member as such

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