Joint ShareHolding Under Company Law

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Introduction

The Law Generally

Subscription, Transfer and Transmission

Quorum, Proxy, Voting and Dividend

Qualification Shares held jointly by Director

Application for Prevention of Oppression and Mismanagement

Requisitioning EGM under Section 169

Liability for Calls

Transposition and Splitting of Names

Joint Shareholder as an Individual Applicant

Introduction

The Companies Act 1956 (“the Act”) is silent as to whether two or more persons can hold shares in a company jointly and if so, the number who can hold. The fact of joint holding is however recognized by referring to it in several provisions

In plain English, joint shareholding means that names of two or more persons are put on a company’s share certificate and inserted in the company’s Register of Members. Dual relationship arises – between the company and the joint shareholders and between the joint shareholders inter se. Each relationship is independent of the other – the company is not concerned with the mutual arrangement between the joint shareholders

For companies listed on stock exchanges, statute provides that shares cannot be held jointly by more than 3 persons (Circular no. 11/7/SE/75 dated 12 February 1976 issued by the Department of Company Affairs). Similar provisions are invariably contained in the Articles of most non-listed companies (3 or 4)

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The Law Generally

Under the Act, each joint shareholder is considered a separate member except where it provides that joint holders shall be considered as one member. Section 41(2) requires that every person (other than subscriber to the Memorandum of Association) who agrees in writing to become a member of the company and whose name is entered in the Register of Members maintained by the company shall be a member. Thus each joint shareholder shall be deemed to have so agreed and there shall be as many members as there are joint holders

Let us consider this through the 2 forms of companies –

Private Companies –

In addition to other criteria, Section 3(1)(b)(iii) defines “private company” as one that limits its members to fifty. For the purpose of this definition, two or more persons holding shares jointly are treated as a single member. In other words, joint members may not necessarily be considered as a single member for other purposes so long as the total number of members does not exceed fifty. The joint shareholders are entitled to split the shares and register themselves separately (in order to enable them to individually enjoy the privileges available to members, but the directors of the company may refuse their application if it would have the effect of contravening the Act by increasing the number of members beyond fifty (Jarnail Singh v Bakshi Singh All India Reporter 1960 Punjab 455)

There could be 50 sets of joint holders – each set would be treated as one member, resulting in 50 members. A relevant case is Narandas M. Ramji v. Indian Mfg. Co. Ltd. All India Reporter 1955 Bombay 433

Public Companies

Every joint holder is considered a separate member in a public company – the holders do not collectively constitute one member. Section 150, for instance, requires the company to enter in its Register of Members the name, address and occupation of each member. If joint holders were to be considered as a single member, it is difficult to comprehend how the details would be entered without treating them as one entity (which they do not constitute). This is further clarified by the section itself

A similar situation can also be considered in Section 159 (Annual Return) read with Schedule V, Part I (providing its contents)

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Subscription, Transfer and Transmission

A partnership firm cannot sign since it is not a “person” (like a company). Therefore, if partners of a firm subscribe, they become joint holders of the subscribed shares (Section 12). Partners must individually sign (Re Glory Paper Mills Co., Dunster’s Case (1894)3 Ch. 473 and Sadler v Whiteman (1910) 1 KB 868)

If a change occurs in the partnership and the shares are to continue as assets of the firm, their transfer will have to be effected by a regular transfer in the names of the new partners

A transfer of shares held jointly is invalid unless signed by all of them. The instrument of transfer has to be executed by all of them as transferors (Hemlata Saha v Stadmed [P] Ltd. All India Reporter 1965 Calcutta 436)

In section 108 (Transfer not to be registered except on execution of instrument of tranfer), the singular “transferor” is deemed to include the plural

The procedure for transfer does not apply to transmission of shares – it is automatic and by operation of law. For a more detailed writing on this aspect of company law, click here

Quorum, Proxy, Voting and Dividend

Joint shareholders are considered as one member under the Act for the purpose of quorum

In Re Transcontinental Hotel Limited (1947) SASR 49, an Australian case referred in Palmer’s Company Precedents, the Articles of a company required a quorum of two members to pass a special resolution. The court held that the presence of two persons registered as joint shareholders was sufficient compliance

For a proxy form to be valid, all the joint holders must sign it, unless the Articles enable otherwise. A proxy appoints an agent and creates a contractual relationship – to be effective, therefore, it must be executed by all the principals or by one authorised by the rest

Regulation 57, Table A, Schedule I to the Act provides that in case of joint holders, the vote (whether in person or by proxy) of the person first named in the Register of Members shall be accepted to the exclusion of the votes of the other joint holders

If a similar regulation is not part of a company’s Articles, then every joint member shall be entitled to remain present, participate and vote on resolutions decided on a show of hands

Section 205(5)(b) of the Act clarifies that in case of joint holders, dividend shall be sent to the registered address of that member named first in the company’s Register of Members or to such person and address as they may direct in writing. This criteria is extended to payment of interest and other moneys by Regulation 91 of Table A, Schedule I to the Act

Regulation 92 states that any two or more joint holders may give effectual receipts for any dividends, bonuses or other moneys payable in respect of a share

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Qualification Shares held jointly by Director

In Grundy v Briggs (1910) 1 Ch. 444, it was held that a person as a Director was qualified as a Director by virtue of his registration as a joint holder and it was incorrect to contend otherwise

Articles of companies do provide that qualification shares of a Director shall be in his sole name and own right – jointly holding them will not be sufficient

Application for Prevention of Oppression and Mismanagement

Section 399(2) of the Act clarifies that in considering the minimum number of members entitled to make the application under Sections 397 and 398, joint holders of a share shall be counted as one member

Requisitioning EGM under Section 169

In contrast to the above, Section 169(8) of the Act clarifies that a notice or requisition calling an Extra-Ordinary General Meeting shall be good even if one or some of the joint holders have signed it – each of the joint holders is therefore treated as a separate member

Liability for Calls

Section 43 of Indian Contract Act, 1872 is important here – I reproduce it to stress the importance (pardon the excessive legalese) –

Any one joint promissor may be compelled to perform – When two or more persons make a joint promise, the promisee may, in the absence of an express agreement to the contrary, compel any one or more of such joint promisors to perform the whole of the contract

Each promisor may compel performance – Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract

Sharing of loss by default in contribution – If any one of two or more joint promisors makes default in such contribution, the remain joint promisors must bear the loss arising from such default in equal shares

Regulation 15, Table A, Schedule I to the Act says that the joint holders of a share shall be jointly and severally liable to pay all calls – in other words, together and separately

A joint holder paying the call shall be entitled to bring an action against the remaining joint holders for contribution

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Transposition and Splitting of Names

Joint holders are entitled to arrange among themselves as to which of them shall stand first on the Register of Members (and exercise on behalf of all, the right of voting which belongs to all collectively) (Re Saunders (T.H.) & Co., (1908) 1 Ch. 415)

There is no need of transfer deeds for change in the order of names, provided the request is made by all jointholders. Where the change is requested only in respect of part of the holding, ofcourse, a transfer deed will be required. A relevant case is Burns v Siemens Bros. Dynamo Works (1919) 1 Ch. 215

Joint holders are entitled to require the company to split the holding and alter its register, so that each joint holder becomes the first named for a part of the holding

Regulation 7(3), Table A, Schedule I of the Act permits a company to refuse splitting. A private company may also refuse, if it would increase members beyond 50

Joint Holder as an Individual Applicant

As every joint holder is a member of a company, any acquisition by one of them in his individual capacity is valid and cannot be refused by the company on the ground that any holding must be acquired in joint names only

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