# Equity Share Capital

## 1. Definition by Exclusion

The Act defines equity share capital by exclusion:

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

— Section 43(a) read with Explanation I to Section 43.

## 2. Two Sub-Categories

Equity share capital is further classified into:

### (a) Equity Shares with Voting Rights

Also called 'plain vanilla' equity because every share carries equitable / equal voting rights.
One share = one vote.
This is the default category in most companies.

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

May differ as to:
Dividend, or
Voting rights, or
Otherwise
Must comply with Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014.

## 3. Common Names

Equity shares are also called:

Ordinary shares (more common in Indian/UK usage)
Common shares (US usage)

## 4. Quick Visual

```

Equity Share Capital

-----+-----

| |

With With differential

voting rights

rights (dividend / voting /

(plain otherwise)

vanilla)

```

## 5. Why DVR Shares Exist

DVR shares allow promoters to raise capital from the public without diluting voting control. For example, a company may issue shares with lower voting power but higher dividend, attractive to investors who want returns but not governance influence (e.g., the well-known Tata Motors DVR issue).

## 6. Key Statutory Hook

Section: 43(a)
Rule: 4 of the Companies (Share Capital and Debentures) Rules, 2014
These rules prescribe eligibility conditions for issuing DVRs — e.g., consistent track record of distributable profits, no default in filing returns, etc.

Worked example

### Example 1

Example — DVR Issue:

ABC Ltd issues two classes of equity:

Class A: 1 vote per share, dividend at declared rate
Class B: 1/10th vote per share, dividend at declared rate + 1% premium

Analysis: Class A is plain vanilla equity. Class B is equity with differential rights — differing in both voting and dividend. The issue must comply with Rule 4 of the SCD Rules, 2014, including the limit that DVR shares cannot exceed 74% of total post-issue paid-up equity share capital.

⚠️ Common exam mistakes

Stating that equity shareholders have no preferential rights at all. They do not have a fixed preferential right, but they bear residual ownership — they get what remains after preference shareholders are paid.
Treating DVR shares as a different class of capital from equity. They are a sub-type of equity.
Forgetting that the issue of DVR shares is subject to strict conditions under Rule 4 — it is not at the free will of the company.

Bare-Act text Section 43(a) read with Explanation (i) · Companies Act, 2013 · click to expand

Explanation to Section 43: For the purposes of this section,— (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 — Types [Section 43(a)]

Worked example

⚠️ Common exam mistakes