Norms eased for shares with differential voting rights; to boost startups

The ministry said its objective was to enable promoters of Indian firms to retain control of their companies “in their pursuit for growth and creation of long-term value for shareholders, even as they raise equity capital from global investors”.

The Corporate Affairs Ministry on Friday relaxed norms relating to the issue of shares with differential voting rights. The move is expected to make it easier for startup promoters to retain control of their companies while raising capital from foreign investors.

Indian companies, including startups, will now have up to 74 per cent of the total voting power in respect of shares with its differential voting rights (DVRs), according to amendments to the Companies (Share Capital and Debentures) Rules. This was previously capped at 26 per cent.

The government has further done away with an earlier requirement that mandated a company to have distributable profits for three years in order to be eligible to issue shares with DVRs. Startups recognised by the Department for Promotion of Industry & Internal Trade can now issue Employee Stock Options (ESOPs) to promoters or directors holding more than 10 per cent of equity shares within 10 years from the date of their incorporation from five years earlier, according to the ministry.