In the present age of globalization, it is often seen that HUF as an entity is required to promote a company for the purpose of its own business or other activities. The question which arises is whether a HUF can become a shareholder in a company or whether it can become subscriber to the Memorandum of Association of a company for the purpose of promoting a company.
In this regard, it may be noted that Section 12 of the Companies Act,1956 dealing with the Modes of forming incorporated company reads as follows:
Section 12. Mode of forming incorporated company.- (1) Any seven or more persons, or where the company to be formed will be a private company, any two or more persons, associated for any lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company, with or without limited liability.
Thus, it is important to refer to the meaning of the word person. Though the income-tax Act, 1961 defines the word Person in Section 2(31) of the Act which is as follows:
‘Person’ includes –
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses;
However, unfortunately, the Companies Act, 1956 is silent on the matter. We may therefore have to refer to the definition as given in the General Clauses Act, 1897.
Section 3(42) of the General Clauses Act, 1897 defines the word person as follows:-
(42) “person” shall include any company or association or body of individuals, whether incorporated or not:
The definition as given above is an inclusive definition and not an exclusive definition and therefore it follows that the word person is of wide import.
Though Companies Act, 1956 doesn’t directly refer to the HUF becoming shareholder or promoting a company, however Section 11 of the Companies Act, 1956 dealing with the Prohibition of Association and partnership exceeding certain number unless it is registered as a company refers to HUF in a negative way. Section 11(3) of the Companies Act, 1956.