Govt relaxes norms for shares with differential voting rights; move to boost startups

According to the ministry, the initiatives have been taken in response to requests from innovative technology companies and startups.

Press Trust of India August 16, 2019 19:03:42 IST
Govt relaxes norms for shares with differential voting rights; move to boost startups
  • Companies can now have up to 74% DVR shares of the total post issue paid-up share capital

  • The corporate affairs ministry amended Companies (Share Capital & Debentures) Rules under the Companies Act

  • The initiatives have been taken in response to requests from innovative technology companies and startups

New Delhi: In a fillip to startups, the government has relaxed norms for shares with differential voting rights that will help such companies to retain control while raising equity capital.

With the amended rules, companies can now have up to 74 percent differential voting rights (DVR) shares of the total post issue paid-up share capital.

The limit has been revised from 26 percent.

Govt relaxes norms for shares with differential voting rights move to boost startups

Representational image Thinkstock.

The corporate affairs ministry has amended the Companies (Share Capital & Debentures) Rules under the Companies Act.

"Another Key change brought about is the removal of the earlier requirement of distributable profits for 3 years for a company to be eligible to issue shares with DVRs," the ministry said in a release on Friday.

According to the ministry, the initiatives have been taken in response to requests from innovative technology companies and startups.

It would also "strengthen the hands of Indian companies and their promoters who have lately been identified by deep-pocketed investors worldwide for the acquisition of controlling stake in them to gain access to the cutting edge innovation and technology development being undertaken by them," the ministry said.

Further, the ministry noted such Indian promoters have had to cede control of companies that have prospects of becoming Unicorns due to the requirements of raising capital through the issuance of equity to foreign investors.

Generally, unicorns are startups that have a market valuation of at least $1 billion.

With respect to shares with DVRs, the existing cap of 26 percent of the total post-issue paid-up equity share capital has been enhanced to 74 percent.

Besides, Employee Stock Options (ESOPs) can now be issued by startups to promoters or directors holding more than 10 per cent of equity shares for 10 years from the date of their incorporation.

The time period for such ESOPs was five years earlier.

The norms for shares with DVRs have been amended to enable promoters of Indian companies to retain control "in their pursuit for growth and creation of long term value for shareholders, even as they raise equity capital from global investors", the release said.

Updated Date:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

Vijay Mallya's defiance prompts Securities and Exchange Board of India to seek changes to Companies Act
Business

Vijay Mallya's defiance prompts Securities and Exchange Board of India to seek changes to Companies Act

In its proposal, SEBI has referred to its interim order dated 25 January, 2017, through which the regulator had barred Mallya and six others from holding directorship in any listed company till further directions.

Govt orders probe into alleged corporate governance lapses; 13 cases referred to serious fraud investigator
Business

Govt orders probe into alleged corporate governance lapses; 13 cases referred to serious fraud investigator

Corporate affairs minister Piyush Goyal claims corporate governance standards at public sector banks (PSBs) are much better than before.

Over 14,000 prosecutions withdrawn under Companies Act, says centre; undertook various steps to improve ease of doing business
Business

Over 14,000 prosecutions withdrawn under Companies Act, says centre; undertook various steps to improve ease of doing business

India has improved its ranking on the World Bank's 'Doing Business 2020' report, moving up 14 positions to the 63rd spot.