Differential voting rights
Also called: DVR shares · Topic: Financial Markets, Instruments, Insurance and Pensions · NCERT: Beyond NCERT
Meaning
Differential voting rights (DVR) shares carry more or fewer votes than ordinary shares. Usually one share gives one vote. DVR shares change this. Founders can hold shares with extra votes, or sell shares with fewer votes to investors. This lets founders of new-age firms, such as tech start-ups, raise large amounts of capital without losing control of the company.
Example
A start-up founder owns only a small part of the company's shares, but each of them carries several votes. After many funding rounds, the founder still controls board decisions. Other investors own most of the capital.
Don't confuse with
- Preference share: this is paid its dividend first and gets its capital back before equity holders, but usually has no voting rights. It is about priority in payment, not about extra or reduced votes.
Related concepts
- Primary market
- Initial Public Offering
- Red herring prospectus
- Book building
- Anchor investor
- Qualified Institutional Buyer
- Application Supported by Blocked Amount
- Green shoe option
- Underwriting
- Grey market premium