# Equity Share Capital — Section 43(a)

## Meaning

Share capital which is NOT preference share capital is equity share capital.

Equity share capital is the residual class — it represents the true 'owner' interest in the company, bearing the highest risk and reward.

## Sub-classifications under Section 43(a)

### (i) Equity Shares with Voting Rights ('Plain Vanilla')

Often called ordinary shares or common shares.
Carry equitable (equal) voting rights in proportion to paid-up capital.
The standard, default form of equity in most Indian companies.

### (ii) Equity Shares with Differential Rights (DVR Shares)

Issued in accordance with prescribed rules — Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014.
May carry differential rights regarding:
Dividend, or
Voting, or
Otherwise (any other right such as liquidation preference within equity).
Issuance requires authorisation in AoA, ordinary resolution (or special resolution for listed companies), and compliance with conditions (e.g., not more than 74% of total post-issue paid-up equity, consistent dividend record for last 3 years, no default in filing financials etc.).

## Key Characteristics of Equity Shareholders

Residual claimants — paid only after creditors and preference shareholders.
Voting rights — proportionate to paid-up capital (Section 47).
Variable dividend — at the discretion of the Board / company; not fixed.
No right to redemption during the company's life (except via buyback under Section 68).

## Position of a Private Company

A private company may, by its memorandum or articles, modify or exclude the application of Sections 43 and 47 — providing flexibility in structuring class rights.

Worked example

### Example 1

Q. A startup wants founders to retain control while still raising capital. It proposes to issue equity shares carrying 5 votes each to founders, and 1 vote each to outside investors, with equal dividend rights. Is this permissible?

A. Yes — these are equity shares with differential voting rights (DVR shares) under Section 43(a)(ii). Issuance is subject to Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014 — including AoA authorisation, requisite shareholder resolution, the 74% cap, and a consistent track record. Also note that a private company can additionally rely on the carve-out from Section 43 if its AoA so provides.

### Example 2

Q. Distinguish 'equity share with voting rights' from 'equity share with differential rights'.

A. Equity with voting rights are 'plain vanilla' — equal voting in proportion to paid-up capital. DVR shares carry differential rights as to dividend, voting, or otherwise, and are issued only on compliance with Rule 4 of the Share Capital and Debentures Rules, 2014.

⚠️ Common exam mistakes

Confusing 'equity with voting rights' as the only equity class — DVR shares are also equity.
Believing all companies can freely issue DVR shares — strict Rule 4 conditions must be satisfied.
Calling DVR shares a separate kind of share capital — they are a sub-class of equity share capital under Section 43(a).
Forgetting that 'ordinary shares' and 'common shares' refer to the same plain vanilla equity shares.

Bare-Act text Section 43(a), Explanation (i), read with Rule 4 of Companies (Share Capital and Debentures) Rules, 2014 · The Companies Act, 2013 · click to expand

Section 43(a) and Explanation (i): 'equity share capital', with reference to any company limited by shares, means all share capital which is not preference share capital.

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Equity Share Capital and Differential Rights Shares (Section 43(a))

Worked example

⚠️ Common exam mistakes