Who Can Become a Member — Eligibility

Not every person or entity is automatically capable of becoming a member of a company. The Companies Act, 2013 and the general law of contract together decide who may validly hold membership.

Minor. Under Section 11 of the Indian Contract Act, 1872, a minor is not competent to contract, and an agreement by a minor is void ab initio (Mohori Bibee v. Dharmodas Ghose). A minor therefore cannot directly apply for and be validly allotted shares, because allotment rests on an enforceable application. In practice, shares are held for a minor's benefit only through a natural or lawful guardian, who applies for and holds the shares on the minor's behalf and signs all documents. Once shares are fully paid up (so that no further call can ever fall due), many companies — subject to their own articles — will register a transfer into the minor's own name acting through the guardian.

Company. A company, being a separate legal person, can become a member of another company, provided its own memorandum and articles permit such investment and the investment is authorised by a resolution of its Board (and, where the monetary limits under Section 186 of the Companies Act, 2013 are crossed, by a special resolution of its own members).

Partnership firm. A partnership firm is not a legal person distinct from its partners under the Indian Partnership Act, 1932, and therefore cannot become a member of a company in the firm's own name. Shares are instead held in the individual names of the partners, jointly, or by one partner as trustee for the firm.

Hindu Undivided Family (HUF). An HUF is likewise not a legal person for this purpose. The Karta (or another family member) holds shares in his own individual name for the benefit of the family, and the company recognises only that individual as the registered member.

Insolvent person. An undischarged insolvent may continue as a member and may even vote, until removed from the register; on adjudication, however, the beneficial interest in the shares vests in the Official Assignee or Official Receiver, who may exercise the rights of membership on the insolvent's behalf.

Foreign national or foreign company. Foreign nationals and foreign companies may become members of an Indian company, subject to compliance with the Foreign Exchange Management Act, 1999 and the extant foreign direct investment policy. …