DGCL Sec. 123 - Ownership of securities | Brian JM Quinn | June 25, 2013

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DGCL Sec. 123 - Ownership of securities

Original Creator: Brian JM Quinn Current Version: Brian JM Quinn

Prior to the adoption of general incorporation statutes, corporations were regularly prohibited from owning stock or securities of other corporations. By specifically permitting a corporation to own and vote the stock of another corporation, §123 makes possible the “holding company” structure.

A holding company is a corporation that has no operations but holds assets in the form of stock of subsidiary operating corporations. This hierarchial business structure is now quite common in the US and has a number of obvious benefits. First and foremost, the holding company structure permits the parent corporation to hold risky assets at arm's length, utilizing the subsidiary's limited liability shield to prevent an adverse risk in one business unit from affecting the entire business operation. The holding company structure also makes it easier to buy and sell corporate assets. Rather than engage in an corporate level merger or sale, the board of directors of a holding company can buy or sell divisions by simply transfering the shares of the division to or from a buyer. For these reasons, and others, the holding company structure has become ubiquitous.

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TITLE 8

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Corporations

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CHAPTER 1. GENERAL CORPORATION LAW

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Any corporation organized under the laws of this State may guarantee, purchase, take, receive, subscribe for or otherwise acquire; own, hold, use or otherwise employ; sell, lease, exchange, transfer or otherwise dispose of; mortgage, lend, pledge or otherwise deal in and with, bonds and other obligations of, or shares or other securities or interests in, or issued by, any other domestic or foreign corporation, partnership, association or individual, or by any government or agency or instrumentality thereof. A corporation while owner of any such securities may exercise all the rights, powers and privileges of ownership, including the right to vote.

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8 Del. C. 1953, § 123; 56 Del. Laws, c. 50.;

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