MCA amends provisions related to Differential Voting Rights under Companies Act

  1. The Ministry of Corporate Affairs has amended the provisions relating to Differential Voting Rights(DVRs) under the Companies Act.
  2. This objective of amendment is to enable promoters of Indian companies to retain control of their companies even as they raise equity capital from global investors.
  3. The amendments made includes raising the existing cap of 26 % of the total post issue paid up equity share capital to 74 % of the total voting power in respect of shares with DVRs of a company.
  4. The amendment has also removed the earlier requirement of distributable profits for 3 years for a company to be eligible to issue shares with Differential Voting Rights.
  5. Differential Voting Rights(DVRs) are issued when promoters or founders of a start up often lose control of the firm when they dilute their stakes to raise multiple rounds of funding.
  6. A DVR share is like an ordinary equity share but it does not follow the common rule of one share-one vote.
  7. DVR enables promoters to retain control over the company even after many new investors come in by allowing shares with superior voting rights or lower or fractional voting rights to public investors.