The board of Securities and Exchange Board of India (SEBI) has approved a framework for companies to issue differential voting rights (DVR) shares. It noted that there is an increasing debate about the need to enable issuance and listing of shares with differential voting rights, commonly known as DVRs in India. Such shares have rights disproportionate to their economic ownership.
The Board approved a framework for issuance of differential voting rights shares along with amendments to the relevant SEBI Regulations to give effect to the framework. A company having superior voting rights shares (SR shares) would be permitted to do an initial public offering (IPO) of only ordinary shares to be listed on the Main Board, subject to fulfillment of eligibility requirements of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the following conditions.
The issuer company is a tech company (as per the definition in Innovators Growth Platform) i.e. intensive in the use of technology, information technology, intellectual property, data analytics, bio-technology or nano-technology to provide products, services or business platforms with substantial value addition. The SR shareholder should be a part of the promoter group whose collective net worth does not exceed Rs 500 Crores. 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 have been issued only to the promoters/ founders who hold an executive position in the company. The issue of these SR shares has been authorized by a special resolution passed at a 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. The SR 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.SR shareholder would not be permitted to vote on such resolutions.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.
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