When we think about shares, our minds naturally gravitate towards the familiar categories of equity and preference shares, often referred to as common stock and preferred stock. However, there exists a relatively lesser-known class of stocks known as DVR (Differential Voting Rights) and SR (Superior Voting Rights) equity shares.
DVR and SR equity shares are a special type of stocks that grant certain shareholders more voting power, giving them the ability to have a greater impact on the company’s decisions compared to regular shareholders.
But the question still pertains: With equity and preference stocks already available for shareholders, why was there a need for DVR or SR equity shares?
Certainly, as the famous saying goes, “Ideas are easy. Implementation is hard.” This sentiment is particularly relevant to startups, where introducing a new idea to the market may seem relatively straightforward, but ensuring its sustained success in today’s competitive environment is a significant challenge.
And that’s not all; when startups are grappling with profitability, the looming threat of takeovers, possibly hostile ones, adds another layer of concern.
SEBI is not opposed to takeovers; it is primarily concerned with hostile takeovers. A hostile takeover is a corporate acquisition in which the acquiring company takes control of the target company against the wishes of the target company’s management.
DVR/SR shares provide founders with crucial control over their startups, safeguarding their vision and preventing hostile takeovers that could replace the management team. They also act as defense mechanism DVR/SR shares are like a shield for startup founders.
They give founders more control over their company and help protect it from hostile takeovers or unwanted changes pushed by activist investors. If someone tries to take over the company, founders can use these special shares to defend against it, making it less appealing for potential buyers. These shares ensure that founders’ vision and leadership stay strong in the face of challenges.
|Differential Voting Rights (DVR) Shares
|Superior Voting Rights (SR) Shares
|Typically founders and key individuals
|Founders, early investors, strategic partners, and other key stakeholders
|Fixed and predefined
|Common in dual-class structures
|May be limited or no dividend rights
|Typically have the same dividend rights as regular shares
|To maintain control over the company’s strategic decisions
|To protect against hostile takeovers, allow key stakeholders to have a say in important decisions, and ensure alignment between founders and investors