Can subsidiary own shares in parent company?

No, an

Indian subsidiary company cannot own shares in a parent company as per the Companies Act, 2013. According to the Companies Act, 2013 a subsidiary company by itself or through its nominee cannot hold shares in a holding company. Further, holding companies are also barred by the Companies Act, 2013 from allotting or transferring its shares to a subsidiary company. However, in special cases, a subsidiary company can hold shares of a parent company as the legal representative of a deceased member of the holding company. Also, a subsidiary company can hold shares of a holding company as a trustee.

Subsidiary Company not to Hold Shares in its Holding Company

The provisions relating to holding of shares by a subsidiary in parent company is mentioned in Section 19 of the Companies Act, 2013, as reproduced below:

(1) No company shall, either by itself or through its nominees, hold any shares in its holding company and no holding company shall allot or transfer its shares to any of its subsidiary companies and any such allotment or transfer of shares of a company to its subsidiary company shall be void:

Provided that nothing in this sub-section shall apply to a case—

(a) where the subsidiary company holds such shares as the legal representative of a deceased member of the holding company; or

(b) where the subsidiary company holds such shares as a trustee; or

Provided further that the subsidiary company referred to in the preceding proviso shall have a right to vote at a meeting of the holding company only in respect of the shares held by it as a legal representative or as a trustee, as referred to in clause (a) or clause (b) of the said proviso.

(2) The reference in this section to the shares of a holding company which is a company limited by guarantee or an unlimited company, not having a share capital, shall be construed as a reference to the interest of its members, whatever be the form of interest.

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Frequently Asked Questions

Common questions about Subsidiary Ownership of Parent Company Shares in India.

No, a subsidiary company cannot acquire shares of its parent or holding company through a share buyback program or any other means. According to Section 19 of the Companies Act, 2013, a subsidiary company is prohibited from holding shares in its holding company, either directly or through nominees. Any allotment or transfer of shares from a holding company to its subsidiary is considered void.

There are three exceptions where a subsidiary company can hold shares in its parent or holding company: (a) when the subsidiary holds shares as a legal representative of a deceased member of the holding company, (b) when the subsidiary holds shares as a trustee, and (c) when the subsidiary was already a shareholder before becoming a subsidiary of the holding company.

If a subsidiary company holds shares in its parent or holding company as a legal representative or trustee, it has a right to vote at the holding company's meetings only in respect of those shares held in that capacity. The subsidiary cannot vote on any other shares it may hold in the holding company.

Yes, the provisions of Section 19 of the Companies Act, 2013, also apply to holding companies that are companies limited by guarantee or unlimited companies without a share capital. In such cases, the reference to shares is construed as a reference to the interest of members, irrespective of the form of interest.

No, the Companies Act, 2013 does not make any distinction between different types of shares. A subsidiary company is prohibited from holding any type of shares, including preference shares, in its parent or holding company.

The provisions restricting a subsidiary from holding shares in its parent company are designed to prevent cross-holdings and potential conflicts of interest. It ensures that the subsidiary remains independent and does not exercise control over the holding company through share ownership.

Yes, there is no restriction on a parent or holding company holding shares in its subsidiary company. The Companies Act, 2013 only prohibits the reverse situation, where a subsidiary holds shares in its parent company.

The Companies Act, 2013 governs Indian companies and their subsidiaries. Foreign subsidiaries of Indian holding companies may be subject to different laws and regulations in their respective jurisdictions regarding holding shares in parent companies.

Any allotment or transfer of shares from a holding company to its subsidiary company in violation of Section 19 of the Companies Act, 2013 is considered void and has no legal effect.

The Companies Act, 2013 does not provide for any explicit exemptions or waivers from the provisions restricting a subsidiary from holding shares in its parent company. Any potential exceptions or special circumstances would require legal interpretation and guidance from regulatory authorities or courts.