Companies Act Section 19 — Subsidiary company not to hold shares in its holding company
CHAPTER II INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO
Commercial / Corporate
Summary
Sub-section (1) states that a company cannot hold shares in its own holding company, either directly or through its nominees. Similarly, a holding company cannot allot or transfer its shares to any of its subsidiary companies. If such an allotment or transfer does happen, it is considered void.
Under the first proviso to sub-section (1), this ban does not apply in three situations: (a) where the subsidiary holds the shares as the legal representative of a deceased member of the holding company, (b) where the subsidiary holds the shares as a trustee, or (c) where the subsidiary was already a shareholder before it became a subsidiary of the holding company.
Under the second proviso to sub-section (1), in the situations covered by the first proviso, the subsidiary company can vote at a meeting of the holding company only in respect of the shares it holds as a legal representative or as a trustee, as mentioned in clause (a) or clause (b) of that proviso.
Sub-section (2) clarifies that when this section refers to shares of a holding company that is a company limited by guarantee or an unlimited company without a share capital, the term "shares" means the interest of its members, whatever form that interest takes.
Official Text
(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
(c) where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company:
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.