A masterclass in shares with differential voting rights.

A masterclass in shares with differential voting rights.

Legal & Compliance

Anisha Patnaik

Anisha Patnaik

267 week ago — 8 min read

Background: Differential Voting Rights (DVR) shares are issued by a company so that they can prevent any inappropriate takeovers or dilution of voting right. It also helps investors who aren’t interested in taking control but are looking to invest big in a company. DVRs are generally compensated with a higher dividend rate and are great for small shareholders as they rarely execute their voting rights. Anisha Patnaik in her previous article explained why do you need Employee Stock Options Plan(ESOP). In this article she explains everything you need to know about DVR shares.


What are Differential Voting Rights share?

DVRs shares are like ordinary equity shares but they give fewer voting rights to a shareholder. They allow a company to dilute equity without a matching reduction in promoter’s stake. So, for instance, Gujarat NRE Coke company issued DVR shares in 2010. The investor has to hold 100 DVR shares for getting voting rights equal to one ordinary share.

Types of DVR   

  • Shares that have superior voting rights
  • Shares that have inferior voting rights


Eligibility/condition for issue of shares with DVR

  • Articles of Assosiation (AOA) of a company should authorise issue of DVR;*
  • Consistent track record of distributable profits for the last three years;
  • No default in filing annual return for last three financial years;
  • No default in payment of declared dividend or repayment of deposit or loan borrowed;
  • the shares with differential rights shall not exceed 26% of the total post-issue paid up equity share capital;
  • No penalty by court or tribunal for any offense for the last three financial years; and
  • The shares issued with DVR cannot be changed later.

*This provision shall not apply to private companies in case the Memorandum of Association (MOA) and AOA of the company provide otherwise.

 DVRs shares are like ordinary equity shares but they give fewer voting rights to a shareholder.

Procedure for issue of shares with DVR

  • Check AOA of the company;
  • Obtain valuation certificate from registered valuer;
  • Open a separate bank account;
  • The terms of issue of shares should be finalised;
  • Conduct board meeting for issue of shares with DVR;
  • In case issue of DVR affects the rights of existing class of shares then obtain consent from 3/4th of the shareholders of that class;
  • Filing form MGT-14 with ROC within 30 days of EGM;
  • Circulate offer letter along with the share application form to the investors;
  • Receive share application money along with the application form ;
  • Conduct board meeting for allotment of shares;
  • File form PAS-3 within 15 days of allotment of shares;
  • Pay stamp duty and issue share certificates; and
  • Make entry in register of members.

Difference between DVR shares and Ordinary Shares
DVR shares

  • Provide few or higher voting right to shareholders.
  • Rate of dividend is low or higher.
  • DVR shares are ideal for small shareholders or promoters.
  • Issued at a discount in comparison with ordinary shares.


Ordinary shares

  • One share one vote.
  • Rate of dividend is fixed for class of shareholders.
  • Ideal for large shareholders.
  • Issue at FMV.

Advantages of Issuing shares with DVR
From issuer perspective

  • To raise more capital without diluting its ownership structure.
  • Gets control in decision making process.
  • A tool to avoid hostile takeover.
  • To fund large Project.


From investor perspective

  • Benefit to investors since share are issued at discount & also for incremental dividend.
  • Better for investors who are looking for good quick return rather than voting rights.
  • Institutional Investors can invest in private companies without any limit and making it a subsidiary.

Disadvantages of DVR

From company perspective

  • Lack of investor awareness about such issue of shares.
  • Issue shares at discount.
  • Minority shareholders can lose faith in the Company.

From investor perspective

  • Lack of investor awareness about such issue of shares
  • Possible misuse of voting power by the promoters and
  • Act against the interest of the shareholders
  • Lack of liquidity may hamper return
  • Not beneficial for Institutional
  • Investors as they are
  • Interested in voting rights and long term capital gains both.

Case of Tata Motors
In 2008, Tata Motors issued 6.4 crore as DVR shares to fund the acquisition of Jaguar Land Rover. It was the first company in India to do so and amongst the very few in Asia. Issued at INR 305 a share, which was about 10% lower than the issue of normal rights at INR 340. The DVR shares would offer 5% dividend more, give an additional 10.3% discount and carry one-tenth of voting rights of ordinary shares. The DVR issue gives the shareholders more economic power in lieu of voting power. This helped Tata Motors raise INR 4,200 crore through a rights issue, including a DVR component of INR 1,964 crore.

Amazon caps voting rights in Witzig Advisory Services at 17%
Amazon bought 17% stake in the company through Class A shares and the rest 32% through Class B shares having differential voting rights (DVR). Each Class A share shall have one vote, while the Class B shares shall not carry any voting rights. This effectively caps Amazon’s voting rights in Witzig at 17%.

Amazon appears to have made use of DVR shares to comply with the new ecommerce FDI norms that came into force from February 1, and also to ensure that More can continue selling on its Indian marketplace. The new ecommerce FDI guidelines had forced Amazon to reduce its stake from 49% to 24% in Cloudtail and Appario, the two top sellers on its marketplace. The American e-tailer had also evaluated the idea of limiting its holding in Witzig to less than 26%, and not acquiring 49% in the company as was originally planned. By capping its voting rights in Witzig at less than 17%, Amazon will be able to continue with More as a seller. Samara Capital will hold 51% in Witzig, making the latter an Indian owned-and-controlled company.


For an investor, who wants to be in the company’s decision processes, DVR  shares is not an attractive proposition due to limited voting rights. But if an investor isn’t concerned much with voting rights, then investing in the DVR would certainly be an attractive option.

Interested in reading more articles on Legal and compliance? Check out some of our articles here:

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Benefits of registration under ‘Startup India’: Financial, income tax & more

Mandatory compliances for a Private Limited Company in India


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