SEBI Framework for Issuance of Differential Voting Rights Shares


Equity shares with Differential Voting Right (“DVR”) shares are those such shares which carry differential rights in respect of dividend, voting or otherwise.

Section 43(a) (ii) of the Companies Act, 2013 (“Act”) provides for the issue of equity shares having differential rights in accordance with the Rule 4 of the Companies (Share Capital and Debenture) Rules, 2014. (“Rules 2014”)

The increasing debate pertaining to the need for enabling issuance and listing of shares with differential voting rights was deliberated by the Primary Market Advisory Committee of SEBI and a DVR group. The report proposed a two head structure: (i) issuance by companies whose equity shares are already listed on stock exchanges and (ii) companies with equity shares not listed but proposed to be offered to the public. Based on this report, SEBI issued a Consultation paper[1] dated 20th March, 2019 and the framework[2] of issuance of DVR shares was approved on 27th June, 2019. This framework is with respect of issuance of shares with Superior voting rights. (“SR  shares”).

Key highlights of the Framework:

1. Eligibility:

A company having superior voting rights shares would be permitted to do an Initial public offering “IPO” only of ordinary shares to be listed which shall be subject to SEBI ( Issue of Capital and Disclosure Requirements) Regulations, 2018 and following conditions:

  • The issuer must be a tech company as per the definition given in Innovators Growth Platform.
  • The SR shareholder should be a part of the promoter group whose collective net worth does not exceed Rs 500 Crore. While determining the collective net worth, the investment of SR shareholders in the shares of the issuer company shall not be considered.
  • The SR shares must only be issued to promoters or founders who hold an execution position in the Company.
  • The issue has been authorised by a Special Resolution which is passed at the general meeting of the shareholders.
  • SR shares have been held for a period of at least 6 months prior to the filing of Red Herring Prospectus (RHP).
  • SR shares  have  voting  rights  in  the  ratio  of  minimum  2:1  to  maximum  10:1 compared to ordinary shares

2. Listing and locking-in:

  • SR shares shall be listed on stock exchange after the public issue.
  • Shall be under the lock-in period after the IPO until the conversion to ordinary shares.
  • No transfer of shares among the promoters shall be permitted.
  • No pledge or lien shall be allowed.

3. Rights of SR shares:

  • SR shares shall be in equal footing with ordinary shares in every respect including dividends except in the case of voting on resolutions.
  • The total voting rights of SR shareholders, post listing shall not exceed 74%.

4. Enhanced corporate governance:

  • At least ½ of the Board and 2/3rd of the Committees (excluding Audit Committee) as prescribed under SEBI (LODR)  Regulations,  2015 shall comprise of Independent Directors.
  • Audit Committee shall comprise of only Independent Directors.

5. Coat-tail Provisions:

SR Equity Shares shall be treated as ordinary equity shares in terms of voting rights, post IPO in the following circumstances:

  • Appointment or removal of independent directors and/or auditor;
  • In case where promoter is willingly transferring control to another entity
  • Related Party Transactions in terms of SEBI Listing Obligations and Disclosure Requirements (“LODR”) Regulations involving SR shareholder
  • Voluntary winding up of the company;
  • Changes in the company’s Article of Association or Memorandum except any changes affecting the SR instrument
  • Initiation of a voluntary resolution plan under IBC;
  • Utilization of funds for purposes other than business;
  • Substantial value  transaction  based  on  materiality  threshold  as  prescribed under LODR;
  • passing of special resolution in respect of delisting or buy-back of shares; and
  • Any other provisions notified by SEBI in this regard from time to time.

6. Sunset Clauses:

SR  shares  shall  be  converted  into  ordinary  shares  in  following circumstances:

  • Time Based: Shares shall be converted to Ordinary Shares on the 5th anniversary of listing. The validity can be extended once by 5 years through a resolution on which the SR shareholder would not be permitted to vote on such resolutions
  • Event Based: SR shares shall compulsorily get converted into ordinary shares on occurrence of certain events such as demise, resignation of SR shareholders, merger or acquisition where the control would be no longer with SR shareholder, etc.

7. Fractional Rights Shares:

  • Issue of fractional rights shares by existing listed companies  shall  not  be
  • The need  for  allowing  issue  of  fractional rights shares by listed companies may however be reviewed after gaining enough experience with the use of SR shares.



This article is authored by Drishti Vanvari, student of Bachelor of Legal Science & Bachelor of Law (B.L.S. LL.B) at Government Law college, Mumbai

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