Introduction
The Companies Act 2013 (the Act) allows the body corporates, that is companies, Limited Liability Partnerships (LLPs), foreign companies etc. to invest in shares of companies and become their members. Ones such body corporates become member of the company, they become entitled to all the membership rights available to any other individual member. one such membership right with respect to body corporates that we shall be discussing in this article is, right to vote at the general meeting of shareholders.
Since the body corporate is not an individual but an artificial person, it has to exercise its right to vote at general meeting through any individual person. In this article we shall try to deliberate upon the question that,
Can the body corporate who holds shares in a company, vote at the general meeting of such company, through a nominee shareholder who holds shares in same company on behalf of the body corporate?
Who is a nominee shareholder
In order to understand, whether or not a body corporate can vote through its nominee shareholder, we must first understand, who is a nominee shareholder. The term ‘Nominee Shareholder’ is not expressly defined under the Act. The proviso to section 187(1[i]), allows the company to hold shares in subsidiary company in the name of a nominee in order to maintain the minimum number of members. That means, if X ltd wants to incorporate a subsidiary being a unlisted public company, then the subsidiary will be required to have minimum 7 members. In such a case, majority shares will be held by X ltd in its own name and some miner percentage of shares will be held in the name of 6 different individuals who shall hold such shares as nominees of X ltd.
Provisions relating to voting by body corporate members at AGM of companies.
Considering the fact that, the body corporate is an artificial person and has to exercise its right to vote through an individual person, the Act has made provision under section 113[ii] of the Act which talks about the person through whom the body corporate member can exercise its right to vote
The section provides that the board of directors or the governing body of the body corporate shall by passing a board resolution, authorise any person (hereinafter referred to as authorised representative) who shall be entitled to vote at the general meeting of the company on behalf of such body corporate. This section simply states that the board may authorise the authorised representative to vote on the behalf of the body corporate. It does not specify any eligibility for such authorised representative, other than that he should be authorised by a board resolution.
Can nominee shareholder act as authorised representative?
Other than section 113, there is one more provision in the Act which discusses about the body corporate acting through its authorised representative. This provision can be found under rule 13(4[iii]) of Companies Incorporation Rules 2014. This provision states that if a company being newly incorporated has a body corporate subscriber to its memorandum, then on behalf of such body corporate member, the memorandum shall be signed by the authorised representative of that body corporate. However, sub-rule 4 and proviso thereto states that such authorised representative should be director, officer or employee of the company (body corporate) and the authorised representative signing the memorandum should not himself be a nominee shareholder.
That means, if X ltd is incorporating a subsidiary and Mr. A, director of X ltd, is proposed to act as nominee shareholder of X ltd in its subsidiary. In such a case, Mr. A cannot sign the memorandum of subsidiary as authorised representative under rule 13(4). Some other director or officer or employee of X ltd has to sign the same.
However, if we refer to section 113(1) it can be seen that, nun of the above mentioned eligibility conditions are prescribed therein for selection of authorised representative. The representative need not necessarily be director or officer or employee of the body corporate member. He can be any person including the nominee shareholder holding shares on behalf of the body corporate.
For example, if X ltd has a subsidiary wherein one member is X ltd itself and other members are nominees of X ltd, then who shall be authorised to vote at the general meeting of subsidiary on behalf of X ltd, is the discretion of the board of directors of X ltd. They can authorize any member of the board or officers or employees or nominee shareholders of subsidiary or any other person to vote at general meeting of subsidiary on behalf of X ltd.
Conclusion.
From the comparative analysis of sections 113 and rule 13(4) of Companies Incorporation rules 2014, it is evident that, although nominee shareholder of body corporate cannot be authorised to sign the memorandum of subsidiary being newly incorporated, but post incorporation, such nominee shareholder can be authorised to vote at the general meeting of subsidiary on behalf of the body corporate member.
[i] Provided that the company may hold any shares in its subsidiary company in the name of any nominee or nominees of the company, if it is necessary to do so, to ensure that the number of members of the subsidiary company is not reduced below the statutory limit.
[ii] 113. (1) A body corporate, whether a company within the meaning of this Act or not, may, —
(a) if it is a member of a company within the meaning of this Act, by resolution of its Board of Directors or other governing body, authorise such person as it thinks fit to act as its representative at any meeting of the company, or at any meeting of any class of members of the company;
[iii] (4) Where the subscriber to the memorandum is a body corporate, the memorandum and articles of association shall be signed by director, officer or employee of the body corporate duly authorized in this behalf by a resolution of the board of directors of the body corporate and where the subscriber is a Limited Liability Partnership, it shall be signed by a partner of the Limited Liability Partnership, duly authorized by a resolution approved by all the partners of the Limited Liability Partnership:
Provided that in either case, the person so authorized shall not, at the same time, be a subscriber to the memorandum and articles of Association.
The article is written by Ms. Rutuja Umadikar and is published in Taxmann. The link is :