Limit on interests in other companies (LGS art. 31)
Section 31 of the General Companies Law limits equity interests: a company (other than one whose exclusive purpose is financial or investment activity) may not hold interests in other companies exceeding its free reserves plus one-half of its capital and statutory reserves.
What article 31
Section 31 caps a company's interests in other companies to prevent indirect decapitalization.
No company, except one whose purpose is exclusively financial or investment activity, may acquire or maintain an interest in one or more other companies in an amount exceeding its free reserves plus one-half of its capital and statutory reserves. An exception applies where the excess results from payment of stock dividends or capitalization of reserves. Interests exceeding that amount shall be disposed of.
Source: Law 19,550, art. 31 - InfoLEG (updated official text)
Commentary
The limit prevents a company from effectively 'draining' its operating capital by investing it in other companies to the detriment of creditors. Holding and investment companies are excepted because of their very purpose. Any excess must be disposed of within the statutory period.
Do you need advice on this matter?
The firm is headquartered in Buenos Aires, Argentina, and advises clients worldwide.
Contact the firm