Manager - Finance & Accounts
58030 Points
Joined June 2010
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:
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The parent company and the subsidiary company are separate legal entities.
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Shares of the parent company can only be issued to investors who are shareholders of the parent companyitself.
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If an investor has invested in the subsidiary, they hold shares in the subsidiary, not the parent.
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For the parent company to issue shares to an investor, the investor must invest directly in the parent company.
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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:
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The parent company owns shares in the subsidiary (since it’s the parent).
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If the parent wants, it can issue shares to investors, but those investors will become shareholders of the parent company, not the subsidiary.
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If investors want to hold shares in the parent company, they need to subscribe to shares of the parent company directly.