Can a Company Hold Shares in Itself? 

In a world full of investment, holding shares can be considered as one of the best ways to get the chance of holding the authority within the company. However, there is always a question pop up in the mind If a company can hold shares in itself or not? Well in this blog, you will get complete detail about the company and its shares. Also, we will guide who can hold shares in a Company. 

Buying Own Shares

A Company can not directly hold or buy its own shares as it is not legal in India. However, there are some cases when it becomes important to a company to buy its own shares but only for a period of time. In some cases even the Government asks companies to buy its own shares. Following are the cases when a Company can buy its own shares: 

• In case of BuyBack: As the name suggests Buyback is a system of getting the shares of the company back with them. Buyback does not allow the company to hold these shares but it is used in case of cancellation or reducing the total Share Capital. 

In this system, companies repurchase the issued shares from an individual and later cancel them which directly reduce the cost of Share Capital. 

• In case to Maintain Transparency: When the Government asks the company to maintain the transparency for all the legal day to day operation, they can buy the shares back and distribute to others to reduce the majority. 

• In case of Treasury Shares: When the Company buys the Shares from the shareholder out of distributed profit in accordance with Companies Act, 2006, then the shares are converted into Treasury Shares. 

Why can't companies buy shares? 

A Company can not directly buy its own shares but it can buy it as Buyback, Treasury Shares, etc. However, the core reason for this can be to maintain legal and conceptual structure. Following are the reasons why a company can’t buy shares in itself: 

• Legal Personality: A Company is a separate legal entity which is separated from its owner in the eyes of law. If a company acquires the shares in its company it is difficult to maintain the transparency. Also, it will be difficult to understand if the company is following the rules within the company or not.

• Capital Integrity: Shares are issued by the company in order to generate the funds and to raise the capital for the Company. These shares are issued among the shareholders in return of Paid-up Capital. If a Company buys and cancels their own shares, it would directly reduce the company’s paid-up capital. 

• Interest Conflict: If a Company can trade its own shares freely, then it can create a chance of conflict between company and its Shareholders. It can allow for possible market manipulation and unfair advantages as well. 

Conclusion 

A Company is a Separate legal entity which used to issue shares to raise the capital of its own company. But the question is if a Company can hold shares in itself, So, to answer this question, No, a company can not hold its shares in itself. As it is considered, a company holding its own shares can cause legal issues, chances of conflict, etc. However, there are two major cases in which a company needs to hold its own shares. A Company can buy its own shares in case of buyback and to maintain the transparency. However, the holding of these shares is for a certain period of time and not completely owning it. It can be due to the time taken during the cancellation of these shares by the Company. 

Frequently Asked Questions (FAQs)

1) Can a Company hold its Shares? 

No, a Company can not buy its own shares as it is considered to be illegal. However, in case of buyback they can hold their own shares.

2) Can a private limited company buy back its own shares?

Yes, private and Public Companies can buy back their own shares with provisions of Section 68. 

3) Can a Company become a member in Another Company? 

Yes, a Company is a legal person and separate Legal entity and it can become a Member in Another Company. 

4) Do you need a resolution to issue shares? 

Yes, it is important to issue a Resolution to issue shares in any company. 

5) How much shares can a Company buy in another Company?

No Limit, Company can buy any percentage of shares in any company, However, the status of targeted company will change upon certain limits on buying of Shares. 

• Up to 50%, No Change in status of Targeted company 
• In case of 51% to 99% shares it will be considered as Subsidiary Company 
• In case of 100% shares, Targeted company will be considered as wholly Owned Subsidiary Company.

6) What are the types of shares that a company can buy in another company? 

A Company can buy Equity Shares and Preference Shares in another Company.

7) Can a Foreign Company acquire Shares in an Indian Company? 

Yes, Foreign Companies can acquire shares in an Indian Company.