Equity Rights Vs Differential Voting Rights

• Kinds of share capital

• (a) equity share capital— (i) with voting rights; or (ii) with differential
rights as to dividend, voting or otherwise in accordance with such
rules as may be prescribed;
• (b) preference share capital: Provided that nothing contained in this
Act shall affect the rights of the preference shareholders who are
entitled to participate in the proceeds of winding up before the
commencement of this Act.
• equity share capital‘‘, with reference to any company limited by
shares, means all share capital which is not preference share capital;
• preference share capital‘‘, with reference to any company limited by
shares, means that part of the issued share capital of the company
which carries or would carry a preferential right with respect to—
• (a) payment of dividend, either as a fixed amount or an amount
calculated at a fixed rate,
• (b) repayment, in the case of a winding up or repayment of capital,
specified in the memorandum or articles of the company;
Right to income :
The equity investors have residual claim to the income of company. The
income left after satisfying the claims of all other investors belongs to
equity shareholder. This income is simply equal to profit after tax minus
preference shares dividend.
Right to control:
Equity shareholders are owners of the firm. So they can elect the board
of directors & have right to vote on every resolution passed before the
company. The board of directors selects the management &
management controls the operations of firm. Hence, equity
shareholders indirectly control the operation of firm.
• Pre-emptive right
• The pre- emptive right enables existing shareholders to maintain their
proportional ownership by purchasing the additional equity shares
issued by company. According to law, existing shareholders have first
priority to purchase additional shares on pro rata basis before the
others.
• Right in liquidation
• Equity shareholders have a residual claim over the assets of the firm
in the event of liquidation. Claims of all others- debenture holders,
secured lenders, unsecured lenders, other creditors, & preference
shareholders – are prior to the claim of equity shareholders.
Voting Power on Major Issues This includes electing directors and proposals
for fundamental changes affecting the company such as mergers or
liquidation. If you can't attend, you can do so by proxy and mail in your vote.
The Right to Transfer Ownership Right to transfer ownership means
shareholders are allowed to trade their stock on an exchange.. Liquidity is
one of the key factors that differentiates stocks from an investment like real
estate.
Opportunity to Inspect Corporate Books and Records This opportunity is
provided through a company's public filings, including its annual report.
The Right to Sue for Wrongful Acts Suing a company usually takes the form
of a shareholder class-action lawsuit.
Corporate Governance
Rights of Equity (plain Vanilla) Shareholders:
Subject to the provisions of section 43 and sub-section (2) of section 50
• (a) every member of a company limited by shares and holding equity
share capital therein, shall have a right to vote on every resolution
placed before the company; and
• (b) his voting right on a poll shall be in proportion to his share in the
paid-up equity share capital of the company.
• Sec.45 Provided further that where the dividend in respect of a class
of preference shares has not been paid for a period of two years or
more, such class of preference shareholders shall have a right to vote
on all the resolutions placed before the company.
Equity shares with differential rights
• DVR in respect to Voting rights and Dividend (5% more)
• Section 43 Companies Act 2013; Rule 4 Companies Act 2014:
• Basic Compliances
• 1. Authorization in Articles of Association
• 2. Shareholder’s Approval
• 3. Maximum Limit (not exceeding 74%)
• Further amendment rule laid down 2019:
• No default in statutory filings ( Financial statements & Annual returns)
of past three years
• No default in payment of dividend, fixed deposits and debentures
(interest & redemption)
• No default in payment of term loan(interest & redemption),
preference shares(dividend & redemption), statutory dues (EPF,
gratuity, bonus shares, PF) and IEPF. (last 3 years)
• No penalty: Not penalized by court under RBI Act 1934,
• SEBI Act 1992, SCR Act 1956, FEMA Act 1999. (for the last 3 years)
• In case of making good in default DVR can be issued from the next
financial year(good) calculated in next 5 years.
• DVR non convertibles to equity share vice versa.