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CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Bharat Textiles Ltd, an unlisted public company, has issued only equity shares so far. Its board wants to issue shares with differential voting rights (DVR) to a few investors. Which of the following is the correct legal position under the Companies Act, 2013 and the Rules?

A company, including an unlisted public company, may issue differential voting rights shares if its articles authorise it, shareholders approve by ordinary resolution, and the prescribed conditions are met, such as distributable profits for three years and no default in statutory filings.

  1. ADVR shares can be issued only by a listed company after SEBI approval, never by an unlisted company
  2. BDVR shares can be issued if authorised by the articles, an ordinary resolution is passed (postal ballot where required), and the prescribed conditions such as three years of distributable profits are metCorrect
  3. CDVR shares can be issued by a simple board resolution without any authority in the articles
  4. DDVR shares can be issued only by a private company, since a public company cannot vary voting rights

Explanation

Equity shares with differential rights as to voting or dividend may be issued if the articles authorise it, shareholders approve by ordinary resolution, and the prescribed conditions are satisfied (e.g. distributable profits for the last three years, no default in filing returns, etc.). Option A is wrong because unlisted companies are not barred. Option C ignores the need for articles and shareholder approval.

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