Investing HUF Funds in a Company from Incorporation
This article explains how a Hindu undivided family can invest in a company from the date of incorporation, why the shares are registered in the name of the Karta, and what declarations under Section 89 and the significant beneficial owner framework under Section 90 of the Companies Act, 2013 then arise.
The topic is practical. An HUF is a separate person for income-tax purposes, so families often assume it can sign the memorandum itself. Company law does not give it that capacity, and the way the holding is recorded affects registers, disclosures and the tax treatment of any later loan from the company.
Can an HUF subscribe to the memorandum or be entered in the register in its own name
No. Sections 3, 4 and 7 of the Companies Act, 2013 deal with formation, the memorandum of association and the incorporation documents, and they operate on persons recognised as members under company law. Status as a person under the Income-tax Act does not carry a separate juristic personality under the Companies Act. The individual Karta subscribes, and holds in a representative capacity.
Under Section 2(55), a subscriber to the memorandum becomes a member on registration of the company and is entered in the register of members. The definition also covers a person whose name is entered as beneficial owner in depository records. Describing the Karta's capacity as "Karta of ... HUF" does not make the HUF the registered member.
Can the Karta subscribe with HUF funds
Yes, provided the capacity and the funding are clearly documented. The Karta manages HUF property and may decide to invest it. The following records should be kept together: