equity shares with differential voting right

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Querist : Anonymous

Querist : Anonymous (Querist)

12 June 2010 plz explain the extact meeing of equity shares with differential voting right in simple language. are these shares carry more voting rights or less voting rights or both. m confused

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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12 June 2010 https://www.caclubindia.com/articles/shares-with-differential-voting-rights-a-strategic-tool-5683.asp

Check the above article by Rasesh Ji.

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Querist : Anonymous

Querist : Anonymous (Querist)

12 June 2010 read the article but my query is about basic terminology. is it mean 10 shares with 1 voting right or 1 shares with 2 or more voting right

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CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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08 August 2010 Usually each equity share has 1 vote at General Meeting. So if you have 100 shares of company, you will have 100 votes. "differential voting right" means you may have more then one vote in respect of shares held by you. i.e. to say for 100 shares you may have 200 votes or 300 votes etc. (it means you have 200 votes for 100 shares and others are having 100 votes for 100 shares).
Company may issue such shares to facilitate active shareholders much authority so resolutions can be passed easily because resolution require votes.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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08 August 2010 Companies (Issue of Share Capital with Differential Voting Rights), Rules 2001- Dated March 9th 2001

The Companies Amendment Act, 2000, has vide Section 86 , permitted public companies to issue shares with differential voting rights. Consequently, Section 88 which prohibited issue of such shares , now stands deleted.

It may be borne in mind that the prohibition on issue of shares with differential voting rights was only on public companies. Private companies, were, all along permitted to issue shares with differential / nil voting rights.

After the enabling provision, the Government has, on 9th March 2001, notified the Rules relating to issue of shares with differential voting rights.

As per the said Rules, only a company which has a track record of profitability as per Section 205 and has not defaulted in filing annual accounts and annual returns for three immediately preceding financial years and has not defaulted on repayment of its deposits / debentures, is eligible to issue such shares.

It is necessary that the Articles of Association of the company authorises the issue of shares with differential voting rights. Hence, existing companies which do not have this provision in their Articles, have to amend their Articles. Consequently, it also becomes necessary to amend the Capital Clause of the Memorandum of Association of the company.

At the time of seeking shareholders approval for such an issue, the Company is to disclose the variation in voting rights which is proposed to be brought about by such an issue.

It may be noted that companies are not permitted to convert their equity shares into shares with differential voting rights and vice versa. It should also be ensured that the shares with differential voting rights which are issued do not exceed 25% of the total share capital issued (including both equity and preference capital).

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Querist : Anonymous

Querist : Anonymous (Querist)

08 August 2010 Sanjayji thx a lot for ur response.it has clarified my doubts