Legal Capacity to Hold Shares

• A JV company registered under the Companies Act, 2013 is considered a separate legal person and can hold shares in other companies.
  
• The power to invest must be authorized by the Memorandum of Association (MoA) under the objects clause.
  
• If not explicitly mentioned, the MoA should be amended to include the power to invest in or acquire shares of other entities.
  
• The JV can invest in private, public, listed, or unlisted companies, subject to applicable regulations.
  

Approval and Internal Compliance

• A board resolution is typically required to approve any investment decision.
  
• In certain cases, shareholder approval may be needed if the investment qualifies as a significant financial transaction under Section 186 of the Companies Act.
  
• The company must record the investment in its Register of Investments and maintain supporting documents.
  
• Investment strategy, valuation, and purpose should be aligned with the JV’s business objectives and risk appetite.
  

Restrictions and Sectoral Conditions

• There are no general prohibitions against JVs holding shares in other companies, unless specifically restricted in the JV agreement or MoA.
  
• In regulated sectors like banking, insurance, and defense, approval may be needed from sectoral regulators.
  
• If the JV has foreign investment, compliance with FDI Policy, FEMA guidelines, and sectoral caps is mandatory.
  
• Investments in listed companies may trigger additional disclosures under SEBI (SAST) Regulations or insider trading norms.
  

Strategic and Financial Purpose

• A JV may hold shares in other companies for strategic partnerships, supply chain integration, or portfolio diversification.
  
• The investment may be short-term (for trading) or long-term (for control or influence).
  
• JVs can also become holding or subsidiary companies if they own more than 50% of another company’s shares or control its board.
  
• Equity investments may be made in related businesses, startups, or project-specific ventures.
  

Accounting and Reporting Obligations

• Investments must be disclosed in the financial statements under Schedule III of the Companies Act.
  
• The nature and purpose of the investment, holding percentage, and classification (current or non-current) must be specified.
  
• Consolidation of accounts may be required under Ind AS, if the JV has significant influence or control over the invested company.
  
• The investment must also be reported in the Annual Return (MGT-7) and other regulatory filings.