Summary of Changes in Equity shares with differential rights after Amendment dated 16.08.2019

MCA issued a notification dated 16.08.2019, to amend the Companies (Share Capital and Debentures) Rules, 2014, which shall come into force on the date of their publication in the Official Gazette.

The Aim of the government has relaxed norms for shares with differential voting rights that will help such companies to retain control while raising further equity capital. The corporate affairs ministry has amended the Companies (Share Capital & Debentures) Rules under the Companies Act.

In Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014, Clause C of Sub Rule 1 is now changes as

The voting power in respect of shares with differential rights of the company shall not exceed seventy four per cent. of total voting power including voting power in respect of equity shares with differential rights issued at any point of time; “

Before Amendments:-

the shares with differential rights shall not exceed twenty-six per cent of the total post issue paid up equity share capital including equity shares with differential rights issued at any point of time;

Effect of Amendments:-

Companies can now have up to 74% Differential Voting Rights shares of the total post issue paid up share capital. The limit has been revised from 26% the existing cap of 26% of the total post issue paid up equity share capital has been enhanced to 74%. The aforesaid rule amended to enable promoters of Indian companies to retain control “in their pursuit for growth and creation of long term value for shareholders, even as they raise equity capital from global investors”.

In Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014, Clause D of Sub Rule 1 is now omitted

Hence due to such omitted clause now the company having no consistent track record of distributable profits for the last three years. This amendment also provides a big relief for issuance of Share with differential voting rights.

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Qualification: CA in Practice
Company: Vaishnavi Agrawal & Co
Location: Gorakhpur, Uttar Pradesh, IN
Member Since: 17 Aug 2019 | Total Posts: 3

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