Plain language law

New Zealand law explained for everyone

 Plain Language Law homepage
Back to
81: Enforceability of transactions
or “How transactions can still be valid even if company rules aren't followed”
You could also call this:

“A company cannot own shares in a company that owns it”

You cannot own shares in a company that owns you. This is because a company that owns part of another company is called a holding company, and the company it owns part of is called a subsidiary. The law says that a subsidiary cannot own shares in its holding company.

If a holding company tries to give shares to its subsidiary, it doesn’t count. Also, if someone tries to transfer shares from a holding company to its subsidiary, that doesn’t count either.

Sometimes, a company that owns shares in another company might become a subsidiary of that company. In this case, the new subsidiary can keep its shares, but it’s not allowed to use them to vote on anything.

There are some special cases where a subsidiary can hold shares in its holding company. This can happen if the subsidiary is looking after the shares for someone else, like a trustee. But even then, the holding company or another subsidiary can’t benefit from those shares, except in some special situations involving lending money.

These rules also apply to anyone who holds shares on behalf of a subsidiary. They have to follow the same rules as if they were the subsidiary itself.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

Next up: 83: Statement of rights to be given to shareholders

or “Shareholders can request a summary of their share details and rights”
Next

Part 6 Shares and debentures
Cross-holdings

82Subsidiary may not hold shares in holding company

  1. Subject to this section, a subsidiary must not hold shares in its holding company.

  2. An issue of shares by a holding company to its subsidiary is void and of no effect.

  3. A transfer of shares in a holding company to its subsidiary is void and of no effect.

  4. Where a company that holds shares in another company becomes a subsidiary of that other company—

  5. the company may, notwithstanding subsection (1), continue to hold those shares; but
    1. the exercise of any voting rights attaching to those shares shall be of no effect.

      1. Where a company on reregistration under this Act in accordance with the Companies Reregistration Act 1993 held shares in another company and was a subsidiary of that other company,—

      2. the company may, notwithstanding subsection (1), continue to hold those shares; but
        1. the exercise of any voting rights attaching to those shares shall be of no effect.

          1. Nothing in this section prevents a subsidiary holding shares in its holding company in its capacity as a personal representative or a trustee unless the holding company or another subsidiary has a beneficial interest under the trust other than an interest that arises by way of security for the purposes of a transaction made in the ordinary course of the business of lending money.

          2. This section applies to a nominee for a subsidiary in the same way as it applies to the subsidiary.