Differential Voting Rights

Section 43(a) of the Companies Act, 2013 provides for the issue of equity shares having differential rights in accordance with Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014. Rule 4(1) of the Companies (Share Capital and Debentures) Rules, 2014 stipulates that a company limited by shares can issue equity shares with differential rights as to dividend, voting or otherwise, only if such issue of shares meet the stipulated conditions. The term differential rights with respect to shares can be interpreted to mean the existence of rights different in nature than the rights that are inherently associated with ordinary shares. The holder of these shares has rights which are different from the holder of ordinary shares. Differential Rights in association with shares are in relation to voting rights, dividend or otherwise.

Conditions for issuing DVR (Rule 4) Companies (Share Capital and Debentures) Rules, 2014

  • The AOA authorizes DVR
  • Ordinary Resolution at AGM
  • DVR shall not exceed 26% of total post issue paid up equity share capital including DVR issued at any point of time.
  • Consistent track record of distributable profit for last 3 years.
  • Company should have not defaulted in filing Financial Statement & annual returns for 3 financial years immediately preceding the financial year in which it is decided to issue such share.
  • The company has no subsisting default in the
    • Payment of declared dividend
    • Repayment of its matured deposits
    • Redemption of Preference share and Debenture
    • Payment of interest on such deposits or debenture
    • Payment of dividend
  • The company has not defaulted in
    • Payment of dividend on preference share
    • Repayment of any term loan from a PFI or state level financial institution or scheduled bank that has become repayable or interest payable thereon
    • Statutory payment dues
    • Default in crediting the amount in IEPF
  • The copany has not been penalized by court Tribunal during the last three years of any offence under various act.

Procedure for issue of DVR

  • Check whether AOA authorizes issue of equity share with DVR.
  • Hold Board Meeting for Notice of General Meeting
  • Pas OR in general meeting
  • If company is listed ,then shareholder approval through postal ballot
  • Within 30 days File form PAS-3.
  • Intimate the details of allotment of shares to the Depository immediately on allotment.
  • Maintain Register of Member under section 88