Business Tips: Fortifying Business Through DVR Shares in India
Incorporated companies in India in the middle of a tight competition usually refer to their incorporation papers to get a hint as to how to cope up with extreme rivalry conditions with other entrepreneurs.
The incorporation guidelines for their business provides legal methods which they can use in raising funds without the fund source having any say on company affairs.
Among the options provided for by the Ministry of Corporate Affairs to select business, one is the Differential Voting Rights (DVR) Shares.
Defining Differential Voting Rights (DVR) Shares
India’s 1.35 billion population is a significant factor contributing to the intense business competition. Moreover, many struggling in the market find it logical to seek additional resources to be able to cope up with the rivalry.
A viable option to keep business afloat is to be able to establish a formidable capital base through equity. You can do this under the equity options with Differential Voting Rights (DVR) Shares.
DVR shares in India are basically like ordinary shares with calibrated voting rights. Thus, DVR shareholders have rights that are disproportionate to the economic rights over the shares.
There are actually two types of DVRs. The first one is superior which allows multiple votes covering just one share. On the other hand, the inferior allows just a fraction of the vote corresponding to one equity share.
Interestingly, MCA only allows the Inferior type of DVR share in India.
Logic Behind Issuance of DVR shares
DVR shares are issued by the companies to raise funds by bringing in passive investors while safeguarding dilution of voting rights. Hence, investors can have less involvement in the management of the company.
DVR shares in India are primarily designed for these purposes:
- Cope up with the competition or survival
- DVR shares also help prevent a hostile takeover.
- To bring in Passive Strategic or Retail Investors
- To meet the company’s growing funding demands
- Lure investors who are not much interested in voting rights
- To fund new large projects or business expansions, due to fewer voting rights
- To help other investors who are after reasonably big investment in a company
- Finally, they help save the Dilution of Voting Rights
Benefits of Acquiring DVR Shares in India
DVR Shares in India help to mutually benefit the company and the investors. We look at some of its benefits:
Higher Dividend Payout: DVR shareholders usually get a dividend premium of 10-20 % to offset lower voting rights. Furthermore, higher dividend payout means more dividend yields.
Trade at Discounted Share Price: Acquisition of DVR Shares in India has a huge discount which ranges from 30 to 40 percent.
Attractive for Passive Strategic / Retail Investors: Issuing DVR shares allows passive strategic investors to earn without having any hand as to how the company is managed.
Getting Trust Investments
Nobody would ever want to give up company control just for a few dimes. Entrepreneurs, however, need not worry as the government has put in place provisions which would allow companies to get fund infusion from external sources without actually affecting company direction, policies and plans.
With the help of incorporation specialists in India, companies struggling to cope up with the sibling corporate rivalry or even survival from fierce business competition may avail of this economic perk. Furthermore, they can help with other business assistance like accounting, bookkeeping, secretarial, etc.
We at 3E Accounting in India, have extensive experience in planning, formation, implementation or even solution to various business concerns. Of course, that would include DVR Shares in India.
For more information, feel free to Contact Us.