Companies holding each others shares
This query is : Resolved
27 September 2013
Good morning experts..
Yesterday I came across balance sheets of two pvt ltd. companies, they were holding 99.7% shares of each other [ A company holding 99.7% shares of company B, B company holding 99.7% shares of company A], is it valid ? Please explain the benefits of doing the same...
Yesterday I came across balance sheets of two pvt ltd. companies, they were holding 99.7% shares of each other [ A company holding 99.7% shares of company B, B company holding 99.7% shares of company A], is it valid ? Please explain the benefits of doing the same...
30 September 2013
No.
As per section 42 of the Companies Act, 1956, a subsidiary cannot hold shares in its holding company except for situations provided therein.
please refer to the below text of section 42 and check if any other situation mentioned therein applies to your case.
42. Membership of holding company.
(1) Except in the cases mentioned in this section, a body corporate cannot be a member of a company which is its holding company and any allotment or transfer of shares in a company to its subsidiary shall be void.
(2) Nothing in this section shall apply-
(a) where the subsidiary is concerned as the legal representative of a deceased member of the holding company; or
(b) where the subsidiary is concerned as trustee, unless the holding company or a subsidiary thereof is beneficially interested under the trust and is not so interested only by way of security for the purposes of a transaction entered into by it in the ordinary course of a business which includes the lending of money.
(3) This section shall not prevent a subsidiary from continuing to be a member of its holding company if it was a member thereof either at the commencement of this Act or before becoming a subsidiary of the holding company, but, except in the cases referred to in sub- section (2), the subsidiary shall have no right to vote at meetings of the holding company or of any class of members thereof.
1. Subs. by Act 65 of 1960, s, 13, for" agrees."
2. Ins. by Act 22 of 1996, s. 31 and Sch. (w. e. f. 20- 9- 1995 ).
(4) Subject to sub- section (2), sub- sections (1) and (3) shall apply in relation to a nominee for a body corporate which is a subsidiary, as if references in the said sub- sections (1) and (3) to such a body corporate included references to a nominee for it.
(5) In relation to a holding company which is either a company limited by guarantee or an unlimited company, the reference in this section to shares shall, whether or not the company has a share capital, be construed as including a reference to the interest of its members as such, whatever the form of that interest.
As per section 42 of the Companies Act, 1956, a subsidiary cannot hold shares in its holding company except for situations provided therein.
please refer to the below text of section 42 and check if any other situation mentioned therein applies to your case.
42. Membership of holding company.
(1) Except in the cases mentioned in this section, a body corporate cannot be a member of a company which is its holding company and any allotment or transfer of shares in a company to its subsidiary shall be void.
(2) Nothing in this section shall apply-
(a) where the subsidiary is concerned as the legal representative of a deceased member of the holding company; or
(b) where the subsidiary is concerned as trustee, unless the holding company or a subsidiary thereof is beneficially interested under the trust and is not so interested only by way of security for the purposes of a transaction entered into by it in the ordinary course of a business which includes the lending of money.
(3) This section shall not prevent a subsidiary from continuing to be a member of its holding company if it was a member thereof either at the commencement of this Act or before becoming a subsidiary of the holding company, but, except in the cases referred to in sub- section (2), the subsidiary shall have no right to vote at meetings of the holding company or of any class of members thereof.
1. Subs. by Act 65 of 1960, s, 13, for" agrees."
2. Ins. by Act 22 of 1996, s. 31 and Sch. (w. e. f. 20- 9- 1995 ).
(4) Subject to sub- section (2), sub- sections (1) and (3) shall apply in relation to a nominee for a body corporate which is a subsidiary, as if references in the said sub- sections (1) and (3) to such a body corporate included references to a nominee for it.
(5) In relation to a holding company which is either a company limited by guarantee or an unlimited company, the reference in this section to shares shall, whether or not the company has a share capital, be construed as including a reference to the interest of its members as such, whatever the form of that interest.
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