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Issuance of shares with differential voting rights or without voting rights

A private company may struggle with structuring its capital in a way to retain the control over management and to gather funds through investments. The Companies Act 1956 was amended in the year 2000 to allow a private company to issue its shares with differential voting rights (hereinafter referred to as “DVRs”). Shares with DVRs can either have multiple votes on one share (commonly referred to as Superior Voting Rights) or a fraction of the voting right on one equity share) or differential rights as to dividend (commonly referred to as Inferior Voting Rights). In 2008 Tata Motors became one of the first companies to issue shares with differential voting rights. This article discusses how a private company can issue shares with DVRs or without voting rights.

What are DVRs?

DVR shares refer to equity shares holding differential voting rights as to dividend or voting. The voting rights that these shares carry are different from the voting rights of the ordinary shareholders. The DVR shares could have a 2:1 or a 10:1 ratio of voting rights. This is in case of Superior Voting Rights. If in the normal course, a single share carries one voting right, a DVR share may carry just 1/10th of the voting right per share. For instance, in 2008, Tata Motors structured its DVR with 1/10th voting rights with a higher dividend than ordinary shareholders.

Section 43 of the Companies Act is read with Rule 4 of the Share Capital and Debenture Rules, 2014 to govern the issuance of DVR shares with respect to public and private companies. There were strict norms governing the issuance however, the rules were amended in 2019 resulting in a relaxation of certain norms.

[caption id="attachment_1474" align="aligncenter" width="612"] Source: istock[/caption]

Some Conditions for Issuance of DVR

The main compliances that a company has to meet for the issuance of DVR shares are listed below:

  1. The Article of Association of the company (AOA) should provide for the issuance of DVR shares. The AOA can be easily amended to meet the requirements of the company.

  2. The general meeting of the shareholders must pass an ordinary resolution to authorize the issuance of shares.

  3. The company must not have any subsisting default in the payment of dividend to its existing shareholders, in redemption of preference shares/ debentures, repayment of matured deposits or in the payment of interest on deposits for a period of three financial years.

  4. The company must not be penalized for any offence during the last three financial years under any special act under which the companies are regulated by sectoral regulators. The acts include, SEBI Act, 1992, Foreign Exchange Management Act (FEMA), 1999, Securities Contracts (Regulation) Act, 1956, Reserve Bank of India (RBI) Act, 1934.

  5. Existing share capital of the company cannot be converted into DVR shares and vice versa. [caption id="attachment_1472" align="aligncenter" width="522"] Source: Freepik [/caption]

Advantages of Issuing DVR shares

  • For the Company:

  1. It helps the company to raise the required capital along with safeguarding the ownership structure against dilution.

  2. It prevents a company from a hostile takeover.

  3. The company retains its control over decision making.

  • For the investor:

  1. The shares are issued at a discounted rate and might foster increased dividend as compared to common equity shares.

  2. The shareholders enjoy all the other rights including bonus shares, right share issue, etc.

  3. They are useful for generating quick returns.

  4. It allows the investor to earn high profits without getting involved in the daily operations.

  1. Can a private company issue shares without voting rights? Section 47 of The Companies Act, 2013 requires every shareholder of a company limited by shares and holding equity share capital to have a right to vote. In other words, this section prohibits a public or a private company from issuing shares without voting rights. However, pursuant to a government notification dated June 5, 2015, a private company has been permitted to issue its shares without voting rights, subject to its Article of Association and Memorandum of Association.The notification exempted the private companies from Section 43 and Section 47 of The Companies Act, 2013, subject to the Article of Association and Memorandum of Association. [caption id="attachment_1473" align="aligncenter" width="852"] Source: Shutterstock[/caption]


  • Government notification dated June 5, 2015 allows a private company to issue its shares without voting rights subject to certain conditions.

  • Apart from Tata Motors, Pantaloons Retail India (Future Retail group), Gujarat NRE Coke and Jain Irrigation are some of the prominent companies that have issued DVR shares.

Written by Pritika Kumar and Layba Yaseen.

Disclaimer: The information contained in this site is provided for informational purposes only and should not be construed as legal advice on any subject matter. For any company law related query or assistance, reach out to us at



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