Voting Rights & Differential Voting Rights (DVR) in Equity Shares

The owners of equity shares have the voting rights in the annual general meetings of the company. Traditionally, voting right was like universal suffrage such as ownership of one share conferred one vote.  Voting rights of a person in a company were equal to shares owned.  However, concept of shares with differential rights was introduced by the Companies (Amendment) Act 2000.

Section 86 of the Act was amended to make a provision to issue differential shares by Indian companies.  These shares are expected to benefit the investors as well as corporates. As per section 86, equity shares with differential rights as to dividend, voting or otherwise can be issued.

A DVR share is like an ordinary equity share, but it provides fewer voting rights to the shareholder. The objective of issuing DVR shares is for prevention of a hostile takeover and dilution of voting rights. It also helps strategic investors who do not want control, but are looking at a reasonably big investment in a company. At times, companies issue DVR shares to fund new large projects, due to fewer voting rights, even a big issue does not trigger an open offer.

The Companies Act permits a company to issue DVR shares when, among other conditions, the company has distributable profits and has not defaulted in filing annual accounts and returns for at least three financial years. However, the issue of such shares cannot exceed 25 per cent of the total issued share capital.