Subsidiary Cannot Hold Shares in Holding Company (Section 19)

# Subsidiary Cannot Hold Shares in Holding Company (Section 19)

## General Rule — Prohibition

A subsidiary company CANNOT hold shares in its holding company:

• Either directly
• Or through its nominees

Further, a holding company CANNOT allot or transfer shares to its subsidiary.

> Any allotment or transfer made in violation of this rule is VOID.

## Rationale

This prohibition prevents circular shareholding which would otherwise allow companies to inflate their share capital artificially and create governance distortions.

## Three Exceptions to the Rule

The subsidiary CAN hold shares in its holding company in these situations:

### Exception 1 — Legal Representative of Deceased Member

• Subsidiary holds shares as legal representative of a deceased shareholder of the holding company
• Voting rights: Yes ✓

### Exception 2 — Trustee Capacity

• Subsidiary holds shares as a trustee for others
• Voting rights: Yes ✓

### Exception 3 — Shares Held Before Becoming a Subsidiary

• Company held shares in the holding company BEFORE it became a subsidiary
• Retention: Permitted ✓
• Voting rights: NO ✗ (loses voting rights after becoming a subsidiary)

## Quick Summary Table

## Memory Aid

"Death and Trust grant voting; Past holdings, just hold but no vote."