In recent corporate trend, there are multiple investment tools available with the changing scenario in the area of corporate laws. These investment tools are much needed by the Companies to cope up with the competition prevailing in the market and for their survival. Situations have arisen where companies require more funds with less involvement in the management of the company. Shares with Differential Voting Rights (DVRs) suits such requirements.

DVRs are shares that have differential voting rights. For example, one share may have multiple voting rights or only a fraction of voting rights. It is not always possible for the promoter to shell out the entire fund requirements of the company. In such scenarios, promoters seek to infuse additional required funds from the outside investors. Such funding however, dilutes the voting rights of the promoters, which in turn might hamper their decision making power, ultimately resulting in a loss of control over the affairs of the company. This is where shares with differential voting rights play ideal role in assisting the promoters to raise funds without diluting their voting rights and control over the company.

From the perspective of investors, this also provides suitable investment options for those investors who are not concerned with voting rights as they are not interest in the management of the company but only look for lucrative dividends for their investments. Additionally DVRs' prices are normally much lower as compared to that of normal shares and offer higher dividends in return. For instance Tata motors was the first company in India to issue DVRs which carried 1/10th voting rights and 5% higher dividend than ordinary shares.


Companies Act 2013 prescribes few conditions to issue shares with Differential Voting Rights –

  1. Articles of association of the company must authorize such issue of shares with differential rights
  2. Such issue shall be authorized by an ordinary resolution passed at the meeting of the shareholders
  3. The voting power of such shares with differential rights shall not exceed 74 % of total voting power including voting power in respect of equity shares with differential rights issued at any point of time
  4. The company should not have defaulted in filing financial statements and annual returns for three financial years immediately preceding the financial year in which it is decided to issue such shares
  5. The company has no subsisting default in the payment of a declared dividend or repayment of its matured deposits or redemption of its preference shares or debentures
  6. The company has not defaulted in payment of the dividend on preference shares or repayment of any term loan from a public financial institution or State level financial institution or scheduled Bank that has become repayable.
  7. The company has not been penalized by Court or Tribunal during the last three years of any offence under the RBI Act 1934, SEBI Act 1992, SCRA 1956, FEMA 1999 or any other special Act, under which such companies being regulated by sectoral regulators.

The holders of shares with differential rights will also have all the other rights such as bonus shares, rights shares etc. like normal equity shares subject to the differential rights with which such shares have been issued.


  1. The Companies (Share Capital and Debenture) Rules, 2014, was amended on 16th August 2019 and the legal position with respect to DVRs was also changed.
  2. Prior to the amendment the shares with differential could not have exceeded 26% of the total post-issue paid up equity share capital including equity shares with differential rights at any point of time.
  3. Prior to the amendment the company was also required to have consistent track record of distributable profits for the last three years.
  4. The amendment notified the following – In the Companies (Share Capital and Debentures) Rules, 2014, in rule 4 (hereinafter referred to as the principal rules), in sub-rule (1), - (i) for clause (c), the following clause shall be substituted, namely:- "(c) the voting power in respect of shares with differential rights of the company shall not exceed seventy four per cent. of total voting power including voting power in respect of equity shares with differential rights issued at any point of time;"
  5. It also removed the requirement of the company to have track record of distributable profit for last three years.

Thus, as per the amendment, now a Company can issue up to 74% Differential Voting Rights (DVR) shares of the total post issue paid up share capital, which under earlier rules was 26% and also the requirement of having distributable profits for the last three years has been removed.


The recent amendments for issue of DVR shares will help companies with no track record of profitability but are seeking funds for their business. This will help the promoters to raise the funds without completely diluting their stake or interest in the business. This amended rules should help the start-ups to raise funds and sustain.

The recent trend in the area of corporate laws has led to the emergence of various investments tools with multiple ways and options to retain control in the company. These instruments have been brought to fore to keep in tune with the changing scenario in the area of corporate laws, the various ways to invest in a particular sector given the regulatory regime and other hurdles. In the wake of growing competition, the need for adoption of various strategies to survive by the companies has become indispensable. Today, demand for a sound capital base is growing. With companies needing more and more capital through equity and less and less interference in the management, the concept of shares with Differential Voting Rights ("DVRS") has gained momentum. Recently, the most talked about issue in the corporate industry was India's largest e-commerce market place operator Amazon which subscribed to DVRS issued by Witzig Advisory Services in order to comply with the new FDI norms which were enforced from February 1, 2019.



2. The Companies (Share Capital and Debentures) Amendment Rules, 2019. Dated 16th August, 2019

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.