Page 112 - DCOM106_COMPANY_LAW

Unit 8: Membership in a Company

In case of fully paid shares, a minor’s name may be admitted in the register of members, Notes
if he happens to acquire the same by way of transfer or transmission. In Devan Singh vs.
Minerva Films Ltd. (AIR 1956 Punjab 106), the court held that there is no legal bar to a
minor becoming a member of a company by acquiring shares (by way of transfer) provided
the shares are fully paid-up and no further obligation or liability is attached to them.
8.4.2 Company

A company, being an artificial person and a separate legal entity may become a member of
another company, if it is so authorised by its memorandum to purchase shares. This is, however,
subject to the provisions of s.42. Under this section, a subsidiary company cannot be member of
its holding company and any allotment or transfer of shares in a holding company to its
subsidiary, or even to a nominee for such subsidiary, is void, except that a subsidiary company
may:

Hold shares in the holding company in the capacity of a personal representative of a
deceased shareholder, or
Hold such shares as trustees, (except where the holding company or another subsidiary is
beneficially interested under the trust otherwise than merely by way of the holding
company’s business), or
Remain a member of its holding company, if it was a member before April 1, 1956, but
may not vote at meetings of a holding company or any class of its members.
As has been mentioned earlier, a company cannot purchase its own shares (s.77) and, therefore,
cannot become a member of itself. However, a company may acquire a beneficial interest in its
own shares, as by the exercise of its paramount lien on the shares of a member as security for
moneys owed by him to the company, or by forfeiture of shares for non-payment of calls.

8.4.3 A Partnership Firm

A partnership firm being an unincorporated association and therefore, not having a separate
legal entity distinct from the partners, cannot be registered as a member in the register of
members of a company. However, partners, either individually or in their joint names (as joint
members) may hold shares in a company as a part of the partnership property. But a partnership
firm may become a member of a company registered under s.25 of the Companies Act, 1956 (i.e.,
associations not for profit).

8.4.4 A Foreigner

As per the Law of Contract, a foreigner can enter into contracts and therefore, can purchase
shares in a company but this is subject to the provisions of Foreign Exchange Management Act,
1999 (FEMA).
When the country, of which the foreigner is resident, is at war with India, then the foreigner
becomes an alien enemy and therefore, his power of voting at company meetings and his right
to receive notices for meetings, etc., are suspended during the war-period.

8.4.5 President of India/Governor of a State

In the case of a government company, the shares can be held in the name of the President of
India/Governor of a State.

LOVELY PROFESSIONAL UNIVERSITY 107