As a company owner or director, you might come across situations where someone wants to allocate shares to a minor โ maybe as part of family estate planning, wealth transfer, or investment strategy. But this raises an important legal question:
Can a minor legally own shares in a company?
Letโs break it down in simple terms, considering Sri Lankan company law, general legal principles, and best practices for businesses.
๐ง Who Is a Minor?
A minor is a person under the age of 18 who is not legally competent to enter into binding contracts. Since buying, holding, or selling shares involves contractual obligations, a minorโs legal capacity is limited.
๐ What the Law Says in Practice
While the Companies Act of Sri Lanka (No. 07 of 2007) does not explicitly prohibit minors from being shareholders, practical limitations arise due to their legal incapacity to:
- Enter into a contract for purchase or transfer of shares.
- Be personally liable for calls on shares.
- Manage voting rights and company decisions.
โ So, Can a Minor Be a Shareholder?
Yes, but with conditions.
A minor can hold shares, but typically through a trustee, guardian, or legal representative who acts on their behalf until they reach the age of majority (18).
๐จโ๐ฉโ๐ง Common Scenarios Where Minors Hold Shares:
- Held in Trust by a Parent or Guardian
- The shares are registered in the name of a parent or guardian.
- The company share register notes that the shares are held in trust for the minor.
- This is supported by Section 86(2) of the Companies Act, which gives full shareholder rights to a beneficiary if a trust is recorded.
- Allocated Through a Will or Gift
- A deceased person may leave shares to a minor.
- Until the minor turns 18, a legal representative manages the shares.
- Family-Owned Companies
- Shares are often distributed among children for succession planning, even if they are still minors.
- Again, a trustee manages these shares until the child becomes legally competent.
๐ Important Considerations for Companies
If your company is issuing or transferring shares to a minor (even indirectly), here are a few things to keep in mind:
1. โ Ensure Legal Representation
Always register a guardian or trustee on behalf of the minor. The minorโs name may be mentioned in the trust declaration, but only legally capable adults should execute share transfers.
2. ๐งพ Update the Share Register
Clearly note that the shares are held in trust for the minor. This ensures compliance and protects both the minorโs and the companyโs interests.
3. โ ๏ธ Avoid Direct Liability
Since minors canโt be held responsible for financial obligations (like unpaid share calls), issuing partly paid shares to minors should be avoided unless fully paid upfront.
4. ๐ข Handle Voting Carefully
While minors have voting rights via their trustee, the trustee casts the vote until the minor comes of age.
๐ Conclusion: Minors Can Own Shares โ With Support
While minors can’t directly enter into shareholding contracts, they can benefit from share ownership through a well-documented trust or guardian arrangement.
This approach ensures:
- Legal compliance โ
- Shareholder rights protection โ
- Smooth succession and estate planning โ
๐ก Final Tip for Business Owners
If you’re considering issuing shares to minors โ whether family members, heirs, or through a trust โ consult a legal professional to structure it correctly. With the right documentation and trust setup, shareholding by minors is completely valid and secure.
