Who Can Become a Member — Capacity

(b) Who Can Become a Member — Capacity

As a general rule, any person who is competent to enter into a contract under the Indian Contract Act, 1872 can become a member of a company. Capacity questions come up repeatedly in

the exam through a handful of recurring fact patterns:

• A minor. Under Section 11 of the Indian Contract Act, 1872, a minor's agreement is void. An application for shares made by a minor in their own name is therefore not a valid contract, and a company is entitled to refuse or later avoid registering a minor as a member on that application. A minor CAN, however, come to hold shares through transmission — for example, by inheriting shares on the death of a member-parent — because transmission arises by operation of law, not by the minor's own contract; in practice, such shares are typically held and operated on the minor's behalf by a natural guardian until the minor attains majority.
• A company. Being a legal person in its own right, one company can validly become a member of another company, and companies commonly hold shares in other companies as investments or for group-structuring purposes. The one important restriction is under Section 19: a subsidiary company generally cannot become a member of its own holding company, and any allotment or transfer of the holding company's shares to its subsidiary is void — the narrow exceptions are where the subsidiary holds such shares as a legal representative of a deceased member, or as a trustee, or where the subsidiary already held those shares before it became a subsidiary (in which case it may continue to hold them, though without voting rights on them at the holding company's meetings).
• A partnership firm. As covered in the earlier Organisation of Commerce chapters, a partnership firm has no separate legal personality distinct from its partners under the Indian Partnership Act, 1932. A firm therefore cannot be registered as a member in its own firm name; shares are instead registered in the individual names of the partners (jointly, if more than one partner is to be recorded), who then become the members in their personal capacity.
• A Hindu Undivided Family (HUF). Similarly, an HUF is not a distinct legal person for this purpose, so shares meant to be "held by the family" are registered in the personal name of the Karta (or another named family member), who becomes the member of record on the company's books, while holding the shares in a fiduciary capacity for the family.
• An undischarged insolvent. A person who is an undischarged insolvent may still continue to be a member and may still exercise voting rights on the shares as long as their name remains on the Register of Members, but the beneficial interest in the shares (the right to dividends and to the value of the shares) vests in the Official Assignee or Official Receiver administering the insolvent's estate, not in the insolvent personally. …