Differential Voting Rights Equity shares

Did you know that there are equity shares that just pay dividends and have the potential to appreciate but have no voting rights? This implies you can issue stock shares to raise capital without losing ownership of your company.

One firm that has done so is Facebook. They gave their investors shares with fewer voting rights when they issued them. This is why Mark Zuckerberg has more voting rights than he does percentage holdings because he simply sold his holdings, not his voting rights.

Several Indian companies that are listed on stock exchanges, such as Tata Motors and Gujarat NRE Coke, are in the same boat.

Several modest Indian start-ups have recently begun issuing discriminatory voting rights.

Isn’t it intriguing? That’s correct.

Let’s take a closer look at it!

DVR: Differential Voting Rights Equity shares

Voting Rights with Differential Effects Differential voting and dividend rights are available with equity shares. It’s the same as regular equity shares, but it comes with either no voting rights or a lot of voting rights.

The most prevalent are those that have no voting rights and are traded on the stock exchange in the same way as conventional equity shares, but at a lower price and with a greater dividend.

For private corporations, they can be issued to investors in the same way that regular equity is, but the company’s owner/founder retains control.

For example, if a conventional equity share declares a dividend of 1%, a DVR share may declare a payout of 5%. Also, if a conventional equity share has a market value of Rs. 500, a DVR equity share has a value of Rs. 200.

What are the benefits of DVR equity shares?

The advantages of DVR stock shares can be considered from two perspectives: from the company’s standpoint and the investor’s perspective.

Let’s take a closer look at each of them.

Advantages to the Company of issuing DVR equity shares

Only a few companies have offered DVR stock shares at this time. It’s primarily due to a lack of understanding. However, the practice of issuing DVRs is becoming more popular, particularly among private businesses.

Let’s take a look at the advantages of issuing DVR stock shares, which a select few smart businesses are counting on.

No dilution of control

While a typical equity share comes with some voting rights, the corporation can preserve ownership of the company while still raising funds by issuing DVR shares. The firm has the option of deciding how much of its power it wants to give up.

Choose your preference

Your corporation can decide what sort of DVR shares to issue and how many voting rights each share will have.

Safeguard against a hostile takeover

When equity shares with voting rights are issued, there is a risk that a single person or entity will own a majority of the shares and thereby usurp control of the company from management.

Disadvantages to the Company of issuing DVR equity shares

The main downside, or limitation, of issuing a DVR share is that finding an investor who accepts DVR shares may be difficult. To invest in a private firm, the investor normally requires voting rights and control in addition to an ownership portion. DVR shares, on the other hand, can be preferred by a retail investor that is only interested in dividends and capital appreciation.

Advantages to the Investor for buying DVR equity shares

If you have an investor, issuing a DVR equity share makes sense. Let’s look at the advantages of owning a DVR share for an investor, which will make issuing one even more appealing.

All other rights intact

A DVR shareholder will receive all additional rights, such as rights shares, bonus shares, and so forth, in addition to voting rights. As a result, if you are a normal investor who is uninterested in the administration of the company’s affairs, you can choose DVR shares and enjoy all of the other rights that come with equity shares.

Less investment

When compared to regular equity shares, DVR shares with fewer or no voting rights are frequently provided at a discount. You can pay less for the same benefits as conventional equity shares by subscribing to DVR shares.

Higher dividend

Another advantage of DVR shares is that they typically provide a higher dividend than conventional equity shares.

Looking at the benefits from both the issuer’s and the investor’s perspectives, it’s reasonable to say that DVR shares are a win-win situation for both. On the one hand, it aids the issuer in maintaining control, while on the other side, it aids the investor in receiving higher dividends.

Investor: Limitation of subscribing to DVR equity shares

The only drawback of buying DVR equity shares is that if you want to have a say in how the company is run and how your advice might help it expand, you should buy regular equity shares instead.