# Equity Shares with Differential Rights (DVR Shares)
## Concept
A company limited by shares may issue equity shares with differential rights (DVRs) — i.e., shares that carry rights different from ordinary equity shares as to dividend, voting, or otherwise. These are governed by Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014.
## Conditions for Issue
The issuing company must satisfy all the following conditions:
### A. Authorisation & Approval
1. Articles of Association must authorise issue of DVR shares.
2. Shareholders' approval via ordinary resolution at a general meeting.
- For a listed public company, the resolution must be passed through postal ballot.
### B. Quantitative Cap
3. Voting power of DVR shares shall not exceed 74% of total voting power at any point of time.
### C. No-Default Conditions
4. Company has not defaulted in filing annual accounts and annual returns for the 3 financial years preceding the year of decision to issue.
5. Company has not defaulted in payment of:
- Declared dividend
- Interest or coupon
- Redemption of preference shares or debentures
- Repayment of matured deposits
6. No default in:
- Payment of dividend on preference shares
- Payment of interest / repayment of any term loan from PFI, SFI, or Scheduled Bank
- Statutory dues relating to employees
- Crediting amount in Investor Education and Protection Fund (IEPF)
> Cooling Period: Despite a default, DVR shares may be issued upon expiry of 5 years from the end of the financial year in which the default was made good.
### D. No Penal Record
7. Company has not been penalised by a Court or Tribunal during the last 3 years under:
- RBI Act, 1934
- SEBI Act, 1992
- Securities Contracts Regulation Act, 1956
- FEMA, 1999
- Any other special Act regulating it
## Additional Procedural Requirements
| Requirement | Description |
|---|---|
| Explanatory statement | Notice of GM/postal ballot must contain particulars: size of issue, details of differential rights, etc. |
| Prohibition on conversion | Existing equity shares with voting rights cannot be converted into DVR shares, and vice versa. |
| Board's Report disclosure | Board must disclose specified particulars in the report for the FY in which the issue was completed. |
| Other rights | DVR shareholders enjoy all other rights (bonus shares, rights shares, etc.) like ordinary equity holders, subject to their differential rights. |
| Register of Members | Must contain all relevant particulars of DVR shares and details of holders (Section 88). |
## Historical Note
- DVR shares issued under the Companies Act, 1956 continue to be regulated under those provisions.
- Before the 2000 amendment to the Companies Act, 1956, differential voting rights shares were not permitted (though such rights existed prior to the 1956 Act).