Karandeep Makkar (Student) (57 Points)
29 January 2011If a company holds shares in another company and tries to purchase shares in a company competing with the company whose shares are held, will this result in conflict of interest? Also, is this in violation of any law?
Vinay B L
(Company Secretary)
(140 Points)
Replied 30 January 2011
Dear Mr. Karandeep,
Your query is not clear to me. Let me explain as I have understood:
There are two companies namely 'Company A' and 'Company B'. Both the companies are in competation with each other. 'Company A' involves itself even in trading of shares apart from its regular business. Now 'Company A' want to purchase some shares of 'Company B'
Situation 1: When the target Company is a public listed Company:
Shares can be purchased by any person and company being a natural person purchase the shares of other companies. But if such purchase crosses 5% of the total paid up capital of the target company, there arises the need to make some disclosures to the stock exchanges.
Situation 2: When the target Company is a private Company:
Section 3(1)(iii)(a) restricts the right to transfer its shares. But if the target Company accepts such transfer of shares there will be no problem,which normally does not happen.
In both the situation it is not a violation of law
Other members' views are solicited.
Thanks and Regards
VINAY B L
Karandeep Makkar
(Student)
(57 Points)
Replied 30 January 2011
A foreign company has a high shareholding in an auto company. A part of company's business is being sold to a manger (management buyout). Now the same foreign company acquires high stake in the company being sold. Is there any law to avoid this as there will definitely be conflict of interest?
Vinay B L
(Company Secretary)
(140 Points)
Replied 30 January 2011
Dear Mr. Karandeep,
I don't think that there is any separate law for the same. But you have to look into the shareholders agreement, which plays a vital role in every FDI. Is there any separate clause to the effect that emeployees of the company should not engage in the business of the Company?
Normally the terms of the employment will also provide for the same.
Other members' views are solicted.
Thanks and Regards
VINAY B L
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