Prohibition on reciprocal shareholdings (LGS art. 32)
Section 32 of the General Companies Law declares void the incorporation or capital increase of companies through reciprocal shareholdings, and limits a controlled company's participation in its controlling company.
What article 32
Section 32 prohibits reciprocal shareholdings and sanctions those who permit them.
The incorporation of companies or an increase of their capital through reciprocal shareholdings, including through an intermediary, is void. A breach shall make the founders, managers, directors and statutory auditors jointly and severally liable without limit. Within three (3) months the capital improperly paid in shall be reduced; otherwise the company shall be dissolved by operation of law. Nor may a controlled company hold an interest in its controlling company or in another company controlled by the latter in an amount exceeding its reserves, excluding the statutory reserve.
Source: Law 19,550, art. 32 - InfoLEG (updated official text)
Commentary
Reciprocal shareholdings create fictitious capital: two companies financing each other inflate capital without a real contribution. The Law prohibits them with severe sanctions, including personal liability and automatic dissolution if not corrected. This is a sensitive issue in corporate group structures.
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