Differential Voting Rights (DVRs), which do not follow the common rule of one share-one vote, 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. The Ministry of Corporate Affairs has amended the provisions relating to Differential Voting Rights (DVRs) under the Companies Act.

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In the past, companies such as Tata Motors, Pantaloon Retails and Jain Irrigation issued DVRs having fractional voting rights of 1/10th of the ordinary shares to public investors. These shares offer higher dividend compared to the ordinary shares in lieu of the voting rights taken away.

But the issuance of DVRs with superior voting rights was prohibited by the SEBI. This was to prevent the possible misuse of power by the promoters detrimental to the interests of small shareholders.

Role played by DVRs in expansion of start-up:

• The ministry of corporate affairs (MCA) has raised the existing cap of 26 per cent of the total post issue paid up equity share capital to 74 per cent of total voting power in respect of shares with DVRs of a company.
• To make capital available to Indian start-ups and to encourage listing on the country’s exchanges, SEBI recently permitted Initial Public Offering (IPO) of unlisted companies with shares of superior rights.
• Start-ups and technology companies will be able to issue shares with differential voting rights (DVRs) with the government amending the Companies Act provisions to help entrepreneurs retain control even as they raise equity capital from global investors.
• This will surely help promoters, especially start- ups, in raising capital without diluting their control over the company
• It strengthens the hands of Indian companies and their promoters who have lately been identified by deep pocketed investors worldwide for acquisition of controlling stake in them to gain access to the cutting edge innovation and technology development being undertaken by them

Conclusion:

This move is aimed at enabling promoters of Indian companies to retain control of their companies in their pursuit for growth and creation of long- term value for shareholders, even as they raise equity capital from global investors.