Differential Voting Rights
Differential voting rights in a company are those shares that give the shareholder extra rights to vote as compared to other shareholders. These rights can be used by the shareholders to gain more votes or less votes based on their choice.
These two share rights are called superior voting rights and inferior voting rights respectively. Usually the equity shares with inferior voting rights gain more dividends as compared to the shares with inferior voting rights.
What is the eligibility criteria for Differential Voting Rights shares?
According to section 43 of the Companies Act, 2013 and the companies (share capital and debentures) rules, 2014, the companies that want to issue the differential voting rights shares need to fulfill the following criteria:
- The company has to issue the share to the article of association of the company who would need to authorise the issuance.
- The company must have a record of profits for the past 3 years.
- The company should get approval from all the shareholders by gathering a general meeting of the shareholders.
- The financial statements and annual returns for the past 3 years must be clearly recorded by the company.
- Any pending debts of the company should be paid off before making this issuance.
- The differential voting rights or DVR shares should not be more than 26% of the paid-up capitals post-issue.
In order to issue the DVR shares, the company needs to analyse this eligibility criteria and make sure that it meets the criteria in order to issue the DVR and get it authorised.
Advantages of DVR shares Investors benefit from DVR shares as they are issued at a discounted rate and earn quick returns. For issuers these shares help in raising more capital and prevent hostile takeover.
