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Can an investor who has invested in a subsidiary or wholly owned subsidiary company which is private

Pvt ltd 586 views 1 replies

Can an investor who has invested in a subsidiary or wholly owned subsidiary company which is private ltd. company, in this case can the parent company allot shares of parent company? 

Replies (1)

Hey Ishank! Let me clarify this for you:

If an investor has invested directly in the subsidiary (a private limited company), then that investment is in the shares of the subsidiary itself.

Now, your question is:
Can the parent company allot its own shares to that investor (who invested in the subsidiary)?

Short answer:

No, the parent company cannot allot shares of itself to an investor who invested only in the subsidiary company.

Explanation:

  • The parent company and the subsidiary company are separate legal entities.

  • Shares of the parent company can only be issued to investors who are shareholders of the parent companyitself.

  • If an investor has invested in the subsidiary, they hold shares in the subsidiary, not the parent.

  • For the parent company to issue shares to an investor, the investor must invest directly in the parent company.

  • There is no automatic right for a subsidiary’s investor to receive shares in the parent company unless there is a specific agreement (like a swap or buyback) or a corporate restructuring.

However:

  • The parent company owns shares in the subsidiary (since it’s the parent).

  • If the parent wants, it can issue shares to investors, but those investors will become shareholders of the parent company, not the subsidiary.

  • If investors want to hold shares in the parent company, they need to subscribe to shares of the parent company directly.


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