Under the Companies Act, 2013 (the Act) there are two kinds of equity shares: (i) equity shares with voting rights; and (ii) equity shares with differential voting rights. Equity shares with differential voting rights (DVRs) are as to dividend, voting or otherwise in accordance with such rules as may be prescribed. If the investment is made by a private equity (PE) fund or venture capital fund or any strategic investor, a company will prefer to issue equity shares with DVRs. This instrument may be preferred by companies when certain investors prefer to participate in the decision-making of the company (i.e. voting) over dividend payment or vice versa.

This article is a checklist for private companies and unlisted public companies for the issue of DVRs under the Act and the Rules made thereunder. The listed companies shall comply with the Securities and Exchange Board of India (SEBI) Regulations in addition to the provisions of the Act.

(1) “Eligible Company” to Issue DVR Shares —A private company or public company can issue equity shares with DVR. Following are some important conditions:

(i) The company has not defaulted in filing financial statements and annual returns for 3 financial years immediately preceding the financial year in which it is decided to issue such shares.

(ii) The company has no subsisting default in the payment of a declared dividend to its shareholders.

(iii) The company has no subsisting default in the repayment of its matured deposits.

(iv) The company has no subsisting default in the redemption of its preference shares.

(v) The company has no subsisting default in the redemption of its debentures.

(vi) The company has no subsisting default in payment of interest on such deposits or debentures or payment of dividend.

(vii) The company has not defaulted in payment of the dividend on preference shares.

(viii) The company has not defaulted in payment of repayment of any term loan from a public financial institution or State level financial institution or scheduled bank that has become repayable or interest payable thereon.

(ix) The company has not defaulted in payment of dues with respect to statutory payments relating to its employees to any authority.

(x) The company has not defaulted in crediting the amount in investor education and protection fund to the Central Government.

(xi) The company has not been penalised by court or tribunal during the last 3 years of any offence under Reserve Bank of India (RBI) Act, 1934, SEBI Act, 1992, Securities Contracts (Regulation) Act, 1956, Foreign Exchange Management Act (FEMA), 1999 or any other special Act, under which such companies being regulated by sectoral regulators.

(2) Authority—Issue of shares with DVRs shall be authorised by the articles of association of the company. There should be an explicit clause, w.r.t. voting rights, dividend rights, etc.

(3) Limit on Issue of Shares with DVRs—The voting power in respect of DVR shares of the company 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) Approval of Board of Directors—A company can issue equity DVR shares after obtaining the approval shareholders by passing an ordinary resolution. Therefore, in such cases, the Board of Directors shall accord its in principle approval for such issue. The points that shall be discussed in the Board meeting and which shall also be part of the minutes of the meetings are necessary provision of articles of association, justification for such issue, number of shares proposed to be offered and allotted, nature of DVRs, issue price, basis of valuation. The Board of Directors may also note the pre-issue and post-issue shareholding pattern of the company.

(5) Approval of the Shareholders—After obtaining the approval of the directors, the company shall obtain shareholders’ approval by passing an ordinary resolution. The explanatory statement to be annexed to the notice of general meeting shall contain the particular prescribed under the Companies (Share Capital and Debentures) Rules, 2014.

(6) Mode of Issue of DVR Shares—The DVR shares can be issued by way of private placement or preferential allotment (i.e. Section 42 of the Act read with Section 62(1)(c) of the Act) or by a public issue (i.e. under Chapter III Part I of the Act).

(7) Conversion/Reconversion—The company shall not convert its existing equity share capital with voting rights into equity share capital carrying differential voting rights and vice versa.

(8) Other Rights of Shareholders—The holders of the equity shares with DVRs shall enjoy all other rights such as bonus shares, rights shares, etc. which the holders of equity shares are entitled to, subject to the differential rights with which such shares have been issued.

(9) Allotment of Sweat Equity Shares—After the approval of the shareholders, the company shall make a necessary offer (private offer or public offer). After receipt of share application money, the Board of Directors shall allot the DVR shares. The Board shall also authorise directors/authorised for completing post-allotment compliances.

(10) Post-Allotment Compliances—After allotment of DVR shares, the company shall, within 30 days thereafter, file with the Registrar a return of allotment in e-Form PAS-3, along with the fee as specified in the Companies (Registration of Offices and Fees) Rules, 2014. The company shall issue share certificates within 2 months from the date of allotment. After allotment of DVR shares, the company secretary of the company or any other authorised person by the Board of Directors shall make necessary entries in the register of members within 7 days from the date of allotment.

(11) Maintenance of Register of Members—Where the company issues equity shares with DVRs, the register of members maintained that shall contain all the relevant particulars of the shares so issued along with details of the shareholders.

*Gaurav N Pingle, Practising Company Secretary, Pune. He can be reached at

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  • Will DVR will increase my Paid up capital?

  • We are incorporating a Pvt limited company. Can we allocate DVR shares to one of the director? And ordinary shares to other two directors…

    • at the time of incorporation, DVRs cannot be issued. Such arrangement can be done after the company is incorporated.

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