Equity Shares with Voting Rights

The term equity shares which is more commonly to as a ordinary share refers to a form of fractional ownership in which each member assumes the full extent of an enterprise’s entrepreneurial obligation. The power to vote is available to these shareholders in any company. The Right to vote at the company’s annual general meeting is provided through the equity shares. Because they are factor in significant corporate choices, this privilege must be carefully utilized.


Owners of equity shares have the ability to vote at the company’s annual general meetings. Historically, the right to vote was equivalent to universal suffrage, meaning that each share owner had one vote. A person’s voting power in a corporation was based on how many shares they owned. However, the Companies (Amendment) Act 2000 introduced the idea of shares with distinct rights.

A provision was added to Section 86 of the Act to allow Indian firms to issue differential shares. Investors and businesses are anticipated to gain from these shares. Equity shares having varied dividend, voting, or other rights may be issued in accordance with section 86. A DVR share is similar to a regular equity share, except the shareholder has less voting rights. In order to avoid a hostile takeover and a diluting of voting rights, DVR shares are being issued. It also benefits strategic investors who are considering a substantial investment in a firm but do not desire control. Due to limited voting rights, even a large issue does not always result in an open offer, thus businesses occasionally issue DVR shares to finance brand-new, expensive initiatives.

DVR shares may be issued under the Companies Act if, among other requirements, the firm has distributable profits and has not missed a filing deadline for annual reports and returns in at least three financial years. However, the total issued share capital cannot be increased by more than 25% by the issuance of such shares.

An overview of the equity share issue with differential voting rights

A company can raise capital by issuing equity shares. Equity shares can be of various types, such as equity shares with pari-passu voting rights or equity shares with differential voting rights.

DVR shares, also known as equity shares with differential voting rights, are similar to regular equity shares but have different voting rights. Similar to regular equity shares, they can be listed and traded. However, because they offer fewer voting rights than regular equity shares, they typically trade at a discount. Companies typically offer DVR Shares investors a higher dividend or a lower dividend as compensation.

Shares with Differential Voting Rights are those that grant the holder differing voting rights from the company’s Ordinary Shareholders, either more or fewer voting rights.

The law and method for the issuance of equity shares with differential voting rights are outlined in Section 43 of the Companies Act of 2013 and the Companies (Share Capital and Debenture) Rules of 2014.

Issue of Equity Shares with Differential Voting Rights – Relevant Laws and Regulations

The following is an excerpt from Section 43 of the Companies Act of 2013 and the Companies(Share Capital and Debenture) Rules of 2014, which contain the relevant rules:-

Two different types of share capital are required for a company limited by shares, namely:

(a) Equity share capital:-

  1. With Rights of Voting, or;

2. With varying voting, dividend, and other rights in line with any applicable regulations AND

3. Preferred share financing

No corporation limited by shares may issue equity shares with different dividend, voting, or other rights unless it meets the requirements listed below, specifically:-

  • The company’s articles of association permit the issuance of shares with differentiated rights.
  • An ordinary resolution adopted by the shareholders at a general meeting authorizes the issuance of shares; however, in cases where a company’s equity shares are listed on a reputable stock exchange, the shareholders must approve the issuance of such shares via postal ballot,
  • More than 26% of the equity shares having differential rights may not be included in the total post-issue paid up equity share capital, which includes equity shares issued at any time.
  • For the past three years, the company has consistently generated distributable profits.
  • The three fiscal years immediately proceeding the fiscal year in which it is determined to issue such shares were the last three fiscal years in which the Company did not default on the submission of financial statements and annual reports.
  • The Company does not currently have any outstanding obligations with regard to the payment of dividends to shareholders, repayment of matured deposits, redemption of preference shares or debentures that have become due for redemption, or payment of interest on such deposits or debentures or dividend payments.
  • The Company has never been in default when it comes to the payment of the dividend on preference shares, the repayment of a term loan from a public financial institution, a State level financial institution, or a scheduled bank that has become due, or the interest that is owed on it. It has also never been in default when it comes to paying the amount in the Investor Education and Protection Fund to the Central Government.
  • The Reserve Bank of India Act of 1934, the Securities and Exchange Board of India Act of 1992, the Securities Contracts Regulation Act of 1956, the Foreign Exchange Management Act of 1999, or any other special Act, pursuant to which such companies are subject to sectoral regulators’ oversight, have not resulted in any fines for the Company over the past three years.
  • The explanation that will be attached to the general meeting notice.
  • The Company is not permitted to convert its outstanding voting equity share capital into equity share capital with differing voting rights or the other way around.
    • The entire amount of shares with different rights granted.
    • The specifics of the varying rights with regard to voting and dividends
    • the proportion of equity share capital with differential voting rights to the total voting rights of the aggregate equity share capital, as well as the ratio of equity share capital with differential rights to the total post-issuance equity share capital with differential rights issued at any given time;
    • The price that these shares were issued.
    • Information about the directors, promoters, or other senior managers to whom such shares are issued.
    • The potential shift in power over the business brought on by the issuance of equity shares with varying voting rights.
    • According to the issuance of each class of shares, the diluted Earnings Per Share determined in compliance with the relevant accounting standards.
    • The ownership structure before and after the issuance, including with voting rights in the manner required by sub rule(2) of rule 4.
    • Subject to the differential rights with which such shares have been issued, the holders of equity shares with differential rights may exercise all other rights, including bonus shares, rights shares, and so forth, to which the holders of equity shares are entitled.
    • When a firm issues equity shares with differential rights, all pertinent information about the shares issued, along with information about the shareholders, must be included in the Register of Members maintained under section 88.

Directory of Rules and Regulation According to which body gets governed

Companies Act, 2013

Every Indian business’s shareholder has the power to vote on any resolution that is put before the company under the 2013 Companies Act. However, the issuing of DVR Shares is also allowed, subject to a few qualifying restrictions, such as timely payment obligations, compliance with disclosure and reporting requirements, and the authorized ratio of DVR Shares to common equity shares.

The Securities Contracts (Regulation) Rules, 1957

The Securities Contracts (Regulation) Rules, 1957 specify, among other things, the minimum offer and allotment of each class of shares to the public as part of public offers. According to the existing provisions, a company that issues different classes of shares must conduct an initial public offering for each class, meeting the required thresholds for each class. As part of the most recent changes made to SVR Shares, SEBI has permitted technology businesses’ initial public offers of “only ordinary shares,” while also stipulating that SVR Shares must also be listed following the issuer company’s public offering.

The two perspectives appear to be at odds with one another, and regulatory clarity may be needed in this area.

DVR Shares in Foreign Jurisdiction

Issuers having existing DVR Shares are allowed to list on the NYSE and NASDAQ in the US, but only after meeting stricter disclosure standards and safety precautions. Major corporations in the US have used DVR Share models, including Facebook, Google, Snapchat, and Alibaba. Dual-class structures are also permitted in Canada, but only with the consent of shareholders who are not the issue’s promoters, directors, insiders, officers, or planned recipients.

DVR Share structures are legal in Hong Kong, but only if they meet specific eligibility requirements. Singapore also allows the listing of businesses with DVR Share structures, but only if those structures already exist.

Analysis and challenges

Investor Protection

From a policy and regulatory standpoint, it appears that efforts are being made to promote and investigate DVR Share arrangements in India moving forward. However, from a commercial perspective, the main issue for Indian businesses and promoters will be to attract investors to DVR Share structures by addressing common worries and offering sufficient safety.

Actually, the potential harm to minority shareholders was the main justification for the initial ban on SVR Shares in 2009. According to the suggested modifications, SEBI’s viewpoint appears to have changed due to two main factors:

  • Implementation of more stringent governance standards and safety nets for businesses with SVR share structures, theoretically comparable to those in the US. All committees of companies that have SVR Shares must have a minimum of two-thirds independent directors, with the exception of the audit committee, which must exclusively be made up of independent directors. Additionally, following the initial public offering, SVR Shares will have voting rights comparable to those of common shares for a list of specified issues, such as: I the appointment or removal of independent directors and auditors; (ii) the promoters’ voluntary transfer of control; (iii) related party transactions involving shareholders holding SVR Shares; and (iv) the company’s voluntary liquidation; (v) amendments to the bylaws other than those that affect the SVR Shares, etc. Sunset clauses have also been added, based on both validity (SVR Shares have a five-year validity period that may be extended by a resolution on which SVR Share holders are not entitled to vote) and specific events (death of the shareholder, resignation from office, relinquishment of control, etc.); and
  • The choice to restrict the permission to technology companies, given the industry’s potential for rapid growth and the requirement to raise capital at the earliest possible time.

Investors are wary of unnecessary and disproportionate promoter influence in the Indian environment, where enterprises are still predominantly promoter driven and closely held. Companies with DVR Share structures are more likely to experience mismanagement by the promoters and oppression of minority shareholders. These promoters may exercise an excessive amount of power and control, making it challenging for investors to intervene if their rights are violated or the company is underperforming.

Pricing, Taxation and Related Issues

Although SEBI has not yet provided any details regarding DVR Shares’ price and valuation-related factors, investors should pay close attention to this moving forward. The best price for each transaction will vary depending on a number of factors that are specific to the company, such as the track record of the enterprise and the promoters, the stage of development the company is in, the prospects for the enterprise and the industry, as well as the proposed voting ratios, dividend payout, etc. Foreign exchange regulations’ pricing criteria must be followed for transactions with non-residents. Given the elevated risk involved, it becomes sense to assume that investors will price DVR Shares conservatively.

The amount of premium paid by investors for SVR Shares will need to be determined on a case-by-case basis because it may be challenging to objectively quantify the additional value attributable to superior voting rights. This could, potentially, lead to “fair market value” based pricing and taxation issues. The Indian tax authorities have historically adopted cautious stances on investment-related issues, particularly when dealing with innovative structures, and the fundamentals are frequently only resolved after extensive and drawn-out litigation. Furthermore, if authorities believe that a transaction utilising DVR Shares has been essentially structured for tax “efficiency,” they may also use the broader powers provided by the General Anti Avoidance Rules regime. Therefore, the strategy chosen by the Indian tax authorities would be crucial moving forward. The recent changes in the taxation of foreign portfolio investors serve as an example of how to establish continuity in tax regulations in order to allay investor fears.

Although SEBI has reopened the capital market to businesses using SVR Share structures, the approach appears restrained, and a staggered implementation strategy has been implemented, giving technology businesses priority. However, the market’s reaction to the regulatory changes can only be predicted over time, and much will depend on how the aforementioned concerns are resolved as well as how promoters are able to offer sufficient protections and persuade investors to invest while attempting to maintain voting control.

Case Laws

Juvansinhji Balusinhji and Ors. Vs. Balbhadrasinhji Indrasinhji and … on 23 June, 1961

Equivalent citations: 1962 32 CompCas 1162 Guj, (1962) GLR 715

Bench: P Bhagwati


In the later judgement of Gujarat high court Juvansinhji Balusinhji and Ors. Vs. Balbhadrasinhji Indrasinhji The bench vacated the interim injunction granted by high court of Bombay at Rajkot restraining the company from holding any general meeting pending the hearing and final disposal of the petition petition relating to voting rights and under equity shares.


As we know that every shareholder who holds equity shares in a business limited by shares is entitled to one vote per equity share. Section 43(a) of the Companies Act of 2013 allows for the modification of rights; for private limited companies, section 47 is not applicable unless specifically stated in the company’s articles of incorporation or memorandum (exemption granted by notification dated June 5, 2015). Actual proprietors of the company and holders of voting rights are equity shareholders. Benefits of Capital and Equity Shares When only equity shares are issued, the business cannot benefit from trading on equity or claim credit for it. Due to the fact that equity capital cannot be recovered, there is a danger of overcapitalizing liabilities. Voting Rights: The ability of a member of a corporation to cast a ballot in person or by mail at any corporate meeting. Differential Voting Rights: When referring to shares, the term “differential rights” refers to the existence of rights that are fundamentally distinct from those that are attached to ordinary shares. Voting rights should be prioritized in the growing market of equity shares. Because SEBI recently approved Initial Public Offerings (IPO) of unlisted firms with shares of superior rights in an effort to increase funding available to Indian start-ups and promote listing on the nation’s markets. It will only be permitted for a small number of enterprises that use advanced technology, information technology, intellectual property, data analytics, biotechnology, or nanotechnology, due to potential corporate governance difficulties. Only promoters or founders are permitted to own superior rights shares, which have voting rights that range from 2:1 (2 votes per share) to 10:1 (10 votes per share) in comparison to common shares. Shares having superior rights shall be treated equally with common shares following listing. But until they are changed into regular shares, such shares cannot be listed and traded on the exchange platform. After five years of the listing of ordinary shares or the death or resignation of the shareholder with superior rights, superior rights shares are converted to ordinary shares. Furthermore, it will not be possible to transfer shares with superior rights or to create any kind of encumbrance on them, such as a pledge or lien. In addition to these limitations, such corporations would be required to adhere to stricter corporate governance standards. At least half of their board and the entire audit committee would need to be made up of independent directors. Small retail investors who wish to gain financially from a company’s performance but are not interested in voting rights may find that their investment options have just increased as a result of SEBI’s clearance to list unlisted firms with superior rights. Nevertheless, until there is greater knowledge of these risks, you must exercise caution because liquidity may be a problem on such shares.

“In India nowadays, the promoters are deemed to be above all others.”





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