Who can become a shareholder of a Company?

The members of a company are also frequently referred to as its shareholders. During the company registration process, the members must be defined prior hand to commence with the other requirements. Under the Companies Act 2013, any individual, body corporate or association can become a shareholder of a company. Further, the company law does not provide for any disqualifications which can refrain any person who can be a shareholder in a company. In this blog we will discuss more about shareholder of a company.

It further appears that any person who is competent to enter into a valid contract can be a member in a company. When the members subscribe between the company and a person who can be a member is formed.

However, the charter documents of the company, i.e., its MOA and AOA may put certain restrictions on who can be a shareholder in a company. This is the sole decision of the first subscribers of the company. Since they prepare and submit the company’s charter documents. In the absence of any express provisions regarding the capacity of someone who can be a director in a limited company, the provisions of Contract Act, 1872 apply. Further, the prevailing laws and judiciary set out basic principles on the various types of members of a company. Let’s dive into them.

Criteria for becoming a shareholder of a company

The following is the criteria for becoming a shareholder of a company:

• Any person who is over the age of 18
• Since shareholding is basically a contract, any person who is eligible to enter into a contract in accordance with the Indian Contract Act, 1872 can hold shares of a company. It is important to note that the MoA and AoA of a company may have certain provisions debarring a person of certain trait from holding shares of the concerned company. If there isn’t any provision relating to this, the provisions laid down by the Indian Contract Act will apply.
• Any entity/body corporate/trust such as Private Limited Company, Public Limited Company, LLP, etc.
• A company can hold the shares of another company if its (buying company’s) constitution articles allow. There are a few restrictions regarding the buying of one’s own shares or that of one’s holding company.
• Two or more people can jointly hold shares of a company. In case of a public company the joint members are individually considered while in a private company joint member are considered one single person.
• The State and Central Government can hold shares in a company through the Governor and the President respectively. The latter can nominate any person as a representative.
• An NRI or a foreign national can hold shares in compliance with FEMA and FDI guidelines
• A minor or a lunatic cannot hold shares of a company. In the minor’s case, guardian of the minor can hold shares in his/her name.

Conclusion

It is important for business owners to educate themselves regarding shareholders since they are a part of the decision-making team. Shareholders form the core of the company. Good shareholders can bring a company from the path of survival to the path of growth. Shareholding happens only in companies as no other corporate entity issues shares. If you are looking to incorporate your own company, reach out to us, where we help people kick-start their business with no hassle of compliance and without involving them with the hassle surrounding registration.