A person being Minor is not competent to enter into a contract i.e. an individual who has not attained eighteen years of age.
Furthermore, as explained by the law, contract entered with the minor is void-ab-initio which means invalid from the beginning excluding certain exceptions.
Participation of Minor in-
> 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. Even 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.
> Participation in 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:
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.