Can subsidiary company hold shares in Holding Company ?


Generally Subsidiary company CANNOT hold a shares of Holding Company. Its now allowed.

Section 19 of Companies Act puts some restriction on having shares by subsidiary company.

Section 19 also provides for exception in which subsidiary company can hold the shares of Holding company

In below circumstances Subsidiary Company can hold the shares of Holding company:

  1. When the subsidiary company is the legal representative of deceased member of of the holding company. For example X  Ltd is holding company and Y Ltd is subsidiary company. Y Ltd is also legal heir of Mr. A who is member of X Ltd. After Mr A dies, his shares in X Ltd will pass on to Y Ltd, thus enabling subsidiary company to hold a share of holding company
  2. When the subsidiary Company is trustee and the holding company or any of it's subsidiaries is not beneficially interested under trust. In this case subsidiary company holds the share as trustee
  3. When subsidiary company had shares in Holding Company even before Holding-Subsidiary relationship comes into existence. For example Y Ltd. holds the share of X Ltd on 1st January 2020. On 1 June X Ltd. acquired the Y Ltd and thus establishing Holding-Subsidiary relationship, in this case Subsidiary company will be allowed to hold shares in Holding company. In this case no voting rights for subsidiary company.
 Apart from this where securities are transferred as normal business transaction such as lending money, then also subsidiary company can hold the share of Holding company. For example is subsidiary company is finance company and gives a loan to Holding company where holding company transfers shares, in this case restriction won't be applied.

Now can subsidiary company is eligible to become a member in Holding Company ? Answer is No. 

What do you think is the reason for now allowing subsidiary company to hold the shares in Holding Company ? Think..!!!

Assume X owes Y Ltd. Now Y Ltd buy shares in X Ltd. Situation then will become X Ltd holds Y Ltd, and since Y Ltd also have shares Y Ltd will hold the X Ltd and we will enter into loop..!!
Legalfundaa



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