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

Sundaram Textiles Ltd, an unlisted public company, has an authorised capital of Rs 10 crore and wishes to issue shares carrying differential voting rights (DVR) in addition to its equity shares with normal rights. Which of the following is the correct legal position under the Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014?

A company limited by shares may issue equity shares with differential rights as to voting or dividend, provided it satisfies the prescribed conditions. These include authorisation in its articles and members' approval by ordinary resolution. A board resolution alone is not enough, and the facility is not restricted to listed companies.

  1. AA company limited by shares may issue equity shares with differential rights as to voting or dividend only if it complies with the prescribed conditions, including authorisation by its articles and an ordinary resolution of membersCorrect
  2. BA company can never issue shares with differential voting rights because every equity share must carry one vote
  3. CDVR shares can be issued only by listed companies and only through a private placement
  4. DDVR shares can be issued without any authorisation in the articles, by a board resolution alone

Explanation

The Act permits equity shares with differential rights as to dividend, voting or otherwise, subject to prescribed conditions. The articles must authorise the issue and the members must approve by ordinary resolution (postal ballot for listed companies). Option B is wrong because differential rights are expressly permitted. Option D is wrong because board approval alone does not suffice.

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