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Journalism of Courage
Indian companies have started issuing shares with differential voting rights. The board of directors of Pantaloon Retail (India) today approved a bonus issue of shares with differential voting rights (DVR) to existing shareholders of the company, subject to necessary shareholder and regulatory approvals.
These bonus issue shares will be offered to all shareholders of the company in the ratio of one bonus share with differential voting rights for every ten equity shares held by shareholders on the record date. The record date will be fixed after the necessary approvals are obtained by the company. The new shares called Class B shares will entitle the shareholders to an additional 5 per cent dividend over the regular dividend payable to Class A shareholders in any financial year. Also, ten such Class B shares will carry one vote.
As per the Companies Act, a firm that has been profitable for three years and which has no default record in filing annual accounts and returns can issue shares with DVRs. However, the law says that the issue should not exceed 25 per cent of the share capital.
What are DVRs?
Under the Companies (Issue of Share Capital with Differential Voting Rights) Rules, holders of ‘differential’ shares will enjoy all other rights except the right to vote. DVRs can potentially be an effective tool to defend against hostile takeovers. Promoters of a company may issue shares with DVRs to themselves, whereby they can hold a small number of shares, but still exercise a large number of votes.
