Firm is not a person or a legal entity distinct from the partners composing it. It is merely a collective name of the individuals who are members of the partnership. It is neither a legal entity nor is it a person. The Companies Act does not contemplate the registration of the name of a firm as the holder of shares of a company, but only individuals or other legal entities. In Sheodayal Khemka's case Page J observed: "A partnership under section 239, of the Contract Act, is a relationship which subsists between persons; but a firm is not a person; it is not an entity; it is merely a collective name of the individuals who are members of the partnership. It is neither a legal entity, nor is it a person". The Department of Company Affairs has in its Circular No. 4/72, dated 9-3-1972 expressed similar view stating that a firm, not being a person, cannot be registered as a member of a company except where the company is licensed under section 25. In another Circular No. 5/75 (8/18/75-CL-V), dated 31-3-1975 issued under section 187C of the Act the Department has expressed similar view.
In the latter, the Department stated: "A partnership firm is not a person capable of being a member within the meaning of section 41 of the Companies Act, 1956 and since a partnership is not a legal entity by itself but only a compendious way of describing the partners constituting the firm, it is necessary that the names of all the members of the partnership firm should be entered in the Register of Members in order that the right of the partnership as a whole to the shares in question may prevail. The holding of shares by only one or more partners on behalf of other partners of a firm should not, therefore, ordinarily arise. However, where in a given case, the name or names, of only one or some of the partners is entered in the Register of Members while the intention is that the partnership as a whole should have the right of membership in respect of the shares in question, it is obviously necessary for such partners who hold shares not only for themselves but for the benefit of all partners constituting the firm whose names are not entered in the Register of Members, to comply with the rules under section 187C."