DIFFERENTIAL VOTING RIGHTS (DVRs)

Meaning:

• Promoters or founders who are instrumental in starting up a company often lose control of the firm when they dilute their stakes to raise multiple rounds of funding.
  
  
• Differential Voting Rights (DVRs) do not follow the common rule of one share-one vote.
  
  
• DVRs enable promoters to retain control over the company even after many new investors come in, by allowing shares with superior voting rights or lower or fractional voting rights to public investors.
  
  

Recent change:

• The Ministry of Corporate Affairs has amended the provisions relating to issue of shares with Differential Voting Rights (DVRs) provisions under the Companies Act.
  
  
• This has been done with the objective of enabling promoters of Indian companies to retain control of their companies, even as they raise equity capital from global investors.
  
  
• The key changes made are:
  • Raising the existing cap of 26 % of the total post issue paid up equity share capital to 74 % of total voting power in respect of shares with DVRs of a company.
    
    
  • Removal of the earlier requirement of distributable profits for 3 years for a company to be eligible to issue shares with Differential Voting Rights.