20/08/2019 - Indian Economy

KEY POINTS

Differential voting right (DVR) shares are same as ordinary equity shares except such stock does not dilute the promoters voting rights and makes it difficult for hostile takeovers

Energising the start ups

·        Several key amendments in the Shares and Debentures Rules of the Companies Act, 2013, including a hike in the limits for the issue of shares with differential voting rights (DVR), could energise the start-up ecosystem.

·        Under the new regulations, entrepreneurs launching tech start-ups should be able to raise capital, while retaining operational control. This should also embolden new concerns to list in India rather than seeking listings abroad.

·        DVRs can be structured so as to give owners of shares lower voting rights, and higher dividend payouts as compensation.

·        The new amendments allow issues of DVRs where the SR shares hold between twice and 10 times the voting rights by ratio.

·        Corporates also need not have demonstrated distributable profits. This is a big relief because many tech companies endure years of loss before establishing themselves.

·        For start-up founders, shares with superior voting rights solve two immediate problems.

·        One, they get to retain control over business decision-making even after significantly diluting their equity stakes.

·        Superior voting rights may also help pre-empt situations where promoters reluctant to dilute equity take on excessive leverage.

·        But irrespective of these safeguards, the experience with DVR shares suggests that shares with inferior voting rights can suffer from low awareness, institutional interest, poor liquidity and chronic mis-pricing. 

please review it

thank u

Kindly review. Thank you.

Kindly review sir,Thank u

Kindly review