Shares With Superior Voting Rights

Tech company shareholders

- Sanket Joshi & Vishal V. Vyas

An equity share with differential rights is like an ordinary equity share, but it provides more or fewer voting rights to the shareholder. The difference in voting rights can be achieved by increasing or reducing the degree of voting power. Companies Act, 2013 allows shares with superior and inferior voting rights. For any company planning to get listed on the stock exchanges, SEBI will allow it to continue to have DVR with superior voting rights only to technology-driven companies, obviously subject to certain conditions as discussed later in the article.

Issue of DVRs under Companies Act, 2013

Section 43 of the Companies Act, 2013 provides that Equity share capital can be

i. with voting rights or

ii. with differential voting rights as to dividend, voting or otherwise.

As regards the issue of fresh DVR, a company is required to comply with the conditions contained in Rule 4 of the Companies (Share Capital 6 Debentures] Rules, 2014. Pursuant to the notification dated 5th June 2015, section 43 and conditions given under the rules do not apply to the private company limited by shares in respect of DVR if the memorandum or articles of association of the company provides so.

Conditions contained in Rule 4 of the Companies [Share Capital & Debentures) Rules, 2014 are as follows:

a) Issue of DVR must be authorized by the Articles of Association [AOA) of the Company.

b) Issue of DVR is authorized by an ordinary resolution at the General Meeting. In the case of companies having more than 200 members, companies are required to pass the resolution through postal ballot. For companies that propose to list their shares on the stock exchange must pass a special resolution, the same has been covered in detail in the latter part of this article.