The Ministry of Corporate Affairs vide notification dated 16th August 2019, has amended several provisions of the Companies (Share capital and Debentures) Rules, 2014. Significant among those are amendments relating to issue of shares with Differential Voting Rights (DVRs) with the objective of enabling promoters of Indian companies to retain control of their companies in their pursuit for growth and creation of long-term value for shareholders, even as they raise equity capital from global investors.
A SUMMARY OF THE KEY CHANGES IN THE AMENDMENT ARE:
- With the amended rules, companies can now have up to 74% voting rights controlled through shares with Differential Voting Rights (DVR), including voting power in respect of equity shares with differential rights issued at any point of time. The limit has been revised from 26% of the total post-issue paid up equity share capital percentage.
- The amendment has omitted the eligibility condition of having consistent track record of distributable profits for the last 3 years for issue of DVR.
- Amendments had been made to Rules on Certificate of Shares (Where Shares are Not in Demat Form) to recognize that the share certificate can be signed by director or company secretary
- Another major step taken is that the time period, within which Employee Stock Options (ESOPs) can be issued by Startups recognized by the Department for Promotion of Industry & Internal Trade (DPIIT) to promoters or Directors holding more than 10% of equity shares, has been enhanced from 5 years to 10 years from the date of their incorporation.
- The requirements with regard to Debenture Redemption Reserve (DRR) has been completely modified and provided separately for each class of companies such as listed entities, unlisted companies and companies undertaking public issue of debentures. Further provisions for DRR have been introduced in case of partly convertible debentures, and it shall be created in respect of non-convertible portion of debenture issue in accordance with this sub-rule. In addition it has been clarified that, the amount credited to DRR shall not be utilized by the company except for the purpose of redemption of debentures.
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