Shares with differential voting rights
Querist : Anonymous
Does this mean, that only a company with three years existence can issue such shares
Please check above article for details.
Querist : Anonymous
But I have gone through this article. In my opinion, the rules does not specify the word 'minimum' for compliance under section 205.
Could you pls clarify
Querist : Anonymous
It may be borne in mind that the prohibition on issue of shares with differential voting rights was only on public companies. Private companies, were, all along permitted to issue shares with differential / nil voting rights.
After the enabling provision, the Government has, on 9th March 2001, notified the Rules relating to issue of shares with differential voting rights.
As per the said Rules, only a company which has a track record of profitability as per Section 205 and has not defaulted in filing annual accounts and annual returns for three immediately preceding financial years and has not defaulted on repayment of its deposits / debentures, is eligible to issue such shares.
It is necessary that the Articles of Association of the company authorises the issue of shares with differential voting rights. Hence, existing companies which do not have this provision in their Articles, have to amend their Articles. Consequently, it also becomes necessary to amend the Capital Clause of the Memorandum of Association of the company.
At the time of seeking shareholders approval for such an issue, the Company is to disclose the variation in voting rights which is proposed to be brought about by such an issue.
It may be noted that companies are not permitted to convert their equity shares into shares with differential voting rights and vice versa. It should also be ensured that the shares with differential voting rights which are issued do not exceed 25% of the total share capital issued (including both equity and preference capital).
"As per the said Rules, only a company which has a track record of profitability as per Section 205"
The track record of profitability term is important so i think it relates to the min 3 years requirement.
Querist : Anonymous
Please check above link.
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