Equity Shares with Differential Voting Rights (DVRs): A Strategic Tool for Founders and Investors

In the dynamic landscape of corporate structuring and capital raising, companies are constantly exploring innovative mechanisms to balance control and capital infusion. One such mechanism gaining popularity in India is the issuance of Equity Shares with Differential Voting Rights (DVRs). These instruments offer a unique way to separate voting power from economic ownership, enabling founders to retain control while raising funds.

What Are Equity Shares with DVRs?

DVR shares are a class of equity shares that carry different voting rights compared to ordinary equity shares. Typically, these shares may carry lower voting rights or, in some cases, higher voting rights (though in India, issuance with superior voting rights is restricted to certain cases). However, they generally offer higher dividends to compensate for the reduced voting power.

For example, a DVR share might carry 1/10th of the voting right of a regular equity share but may offer a higher dividend payout.

Legal Framework in India
The issuance of DVRs in India is governed by:

Section 43(a)(ii) of the Companies Act, 2013
Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (for listed companies)