Shares with differential voting rights (DVR shares) carry different voting rights from ordinary shares, and the Companies (Share Capital and Debentures) Rules set the limits on them. In August 2019, an amendment to these rules, notified as G.S.R. 574(E), removed the earlier condition that DVR shares could not exceed 26% of the post issue paid up equity share capital. In its place, the rules set a cap of 74% on the total voting power of all DVR shares, counting every such share issued at any point of time.
The legal base for DVR shares is Section 43 of the Companies Act, 2013 which allows a company to have equity share capital with differential rights on dividend and voting. The rules for this are set by the central government. For listed companies and for those coming with an A company's first offer of its shares to the public, after which the shares are listed on a stock exchange and can be bought or sold by any investor. Read the full meaning of IPO, the SEBI is the statutory regulator of India's securities market, with the legal duty to protect investors and to promote and regulate that market. Read the full meaning of SEBI rules will apply on top of these provisions.
What superior-voting shares allow founders
Superior-voting (SR) shares are a separate class, and each such share carries between 2 and 10 votes against one vote for an ordinary share. In every other respect, these shares are equal to the ordinary shares.
Only promoters or founders who hold an executive position in company can hold SR shares. An SR shareholder is not eligible if their individual net worth is above Rs 1,000 crore.
In an IPO, the SR shares held as the promoters' contribution will stay locked in for three years and the SR shares held beyond that contribution will stay locked in for one year, whichever period ends later.
The SEBI framework also has a sunset feature, under which SR shares convert into ordinary shares five years after listing, and this can be extended by another five years with shareholder approval. For specified matters, SR shares are treated as ordinary shares, so each of them carries only one vote on those items.
Limits once a company is listed
Once a company is listed, the SEBI Listing Regulations do not allow it to issue shares that give any holder superior or inferior voting or dividend rights against the already listed equity. The exceptions are bonus, split or rights issues of SR shares to the existing SR holders.
For a listed company, the shareholders must also approve any issue of DVR shares through a postal ballot.
Under Rule 4(3), existing equity shares cannot be converted into DVR shares, and DVR shares cannot be converted into ordinary shares. Cancelling DVRs, therefore, requires a buy-back or a capital reduction.
