In India, business is commonly managed by the family member. When the business is privately held and is considered the participation from the junior member(s) of the family is also welcomed. Hence it is feasible to use skills and use the contribution of those members on the business part the contractual & legal part is under ambiguity of business owners.
In this article we have tried to cover the topics in what manner a minor can participate in business.
In order proceed and discuss the business contribution, For entering into the legal entity or a contact with the entity or persons.. As prescribed under the Indian Contract Act, 1872 the contractual capacity of a person is tested as stated in the act under the conditions whether a person can enter into contact or not.
As further explained a person being Minor is not competent to into a contract i.e. an individual who has not attained eighteen years of age in case if a guardian is appointed by the court under Guardian and Wards Act, 1890, the age of minor for considering the minority shall be 21 years.
Furthermore, as explained by the law the contract entered with the minor is void-ab-initio which means invalid from the beginning excluding certain exceptions. The legality of participation of the minor in business is dependent on the same principle.
Now let us discuss each of the business scenario considering the participation of minor :-
> Participation in a Private Limited Company:
For registering a private limited company in India, a person can participate in two ways by holding two different positions i.e. either a Director and/or a Shareholder of the company.
- Directorship by a minor:
For being appointed as a director in any company that person should posses a valid DIN (Director Identification Number) and for obtaining DIN, he/she shall have obtained majority. Therefore a minor can neither hold DIN nor can be a director in Indian Company.
- Shareholding by a minor:
The Companies Act, 2013 permits for holding the shares by the minor subject to the consent of his/ her guardian. As Holding of shares of any company is a kind of contract entered with the company and as stated by the Indian Contract Act, 1872, a minor cannot enter into a contract. Hence, he/she cannot directly hold shares in any company during incorporation by way of subscription provided is a contract for obtaining shares on company’s incorporation.
Even though post incorporation of the Company, a minor cannot purchase shares directly as the said purchasing will be considered as an agreement.
The shares of any Company can be only held if the said shares are gifted by any other person (major).The share gifted must be fully paid up as a minor cannot be held liable for unpaid shares.
If the case pertains to transfer of shares from the Guardian of the Minor. The guardian holding such shares shall act as a Trustee for the said purpose until the minor attains the age of majority.
> Participation in Limited Liability Partnership:
For engaging in Limited Liability Partnership a person can either enter as a normal partner or designated partner. An agreement is required to be entered with the LLP as well as partners for holding either of the positions as mentioned above, which is not valid.
- Minor as Designated Partner:
Like a director in a company, for becoming a designated partner a person must have a DIN/DPIN for appointment. Hence, a minor cannot hold the same and cannot become Designated Partner in an LLP. The designated partner is a partner who shall be responsible for the operations and the compliance of Limited Liability Partnership.
- Minor as Partner:
A minor can be admitted for profits only as he/she cannot enter into an agreement. Here, the minor partner can only be included for profit and he/ she will not be responsible for activity of the firm nor his/her property can be used to pay off any of the liabilities of LLP.
> Participation in Partnership Firm:
Same as in case of LLP, in partnership also a minor can be admitted only for “partner for benefits”. The rights and liabilities of these partners are different from other partners. On attaining the majority the minor partner has an option to choose whether to continue as a partner in the partnership firm or not. The time period of 6 months is from attaining majority or his knowledge about his share in the Firm is allowed.
> Sole Proprietorship Business:
A minor cannot start a business on his own because the liability of a Sole Proprietor is unlimited. As stated by the law a minor cannot be held liable for any of the acts undertaken. Also, as a business owner, he/she is not allowed to enter into a contract with any third parties. Hence, starting or planning to start a sole proprietorship business is not feasible for a minor and is not valid due to incapacity to enter into an agreement.
Conclusion:
The last line says that the minor cannot become a part of the business where his liability is unlimited. Whenever a minor is permitted in the business, his liabilities always state as limited and his/her rights can be exercised in the manner provided. A minor has limited participation allowed to enjoy the rights and should not extend to the responsibilities against the liabilities of business. Though the income earned by a minor is taxable in the hands of parents or the guardian subject to certain provisions as stated by the statue.
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