Sunday, June 1, 2008

Differential Voting Rights: A Markets Perspective

Economic Times carries the views and recommendations of various market participants about the feasibility and economics of issue of differential voting rights by Indian companies.

One interviewee notes:

“Differential voting rights can work every where in the world, and so also in India. These are ideally good instruments for passive investors, typically small investors, who seek higher dividend, and are not necessarily interested in taking a voting position. It is clear that no investor would agree to a sacrifice, which differential voting rights lead to, unless they are suitably compensated, and compensated in financial terms.

Since institutions are active investors, at least they are supposed to be so as per their charters, I do not think there would be any significant demand from them for such shares. Significantly, they invest primarily for capital gains, and not for dividends. There is one operational issue.

The law provides for issue of shares with differential voting rights. This means that a company may issue shares carrying voting rights with different weights, for example with weights of 100 and say 75 and say 50 and say 0. This, however, can lead to huge confusion.”


Suresh S. said...

Is it possible for a Indian Company to Issue following shares to resident outside India under FDI route;

"equity share with differential right as to voting or dividend"


Umakanth V. said...

@Suresh. It should be possible to issue such shares so long as the issuance is otherwise permissible under the FDI guidelines.