When we think about issue of shares in a Company consequently & automatically we think about the ownership of stake in that company by the shareholder. It is quite often that equity shareholder is somehow the owner of the Company, but what to do if we want to raise the money simultaneously we don’t want that the ownership get transfer to other person?…..in this case we have a gateway option given in the Companies Act itself under Section 43(a)(ii), which talks about “Issue Of Share With Differential Voting Rights”, which means we can issue equity share without affecting the ownership over the Company.
However there are two requirements to proceed further:-
First is, checking the Articles of Association (AOA) of the Company whether power is given to issue equity shares with DVRs, or not (If not then amend the AOA).
Second is, if the power persists in the AOA then hold the General Meeting & Pass the Ordinary Resolution for issue of equity shares with DVRs.
Now, there are some conditions which required to be met before you go for the issue…….so according to Rule 4 of Cos. (Share Capital & Debenture) Rules, 2014, the condition for issue of equity with DVRs are as follows:-
To issue shares with differential voting rights company shall hold General Meeting…and for convening General Meeting Notice shall be duly sent with Explanatory Statement, where Explanatory Statement shall contain:-
Point to be noted: A Company cannot convert its existing equity share capital with voting rights into shares with Differential Voting Right and vice-versa.
In the Board Report for the Year in which such issue has been taken place, Director’s shall disclose:
Well we have discussed lots of important points on issue off share with differential voting rights but some other important aspects are:
(The author is a Company Secretary in Practice & can be reached at email@example.com)