Difference Between Ordinary Shares &
DVR Shares
The
term “ordinary shares” is very common in the stock market. Participants in the
market regularly come across this term. However, Differential Voting Rights or
DVR shares is something not heard very often. DVR shares are significant from a
company’s and shareholder’s point of view. In this article, we discuss the differences
between ordinary shares and DVR shares
Before
learning the differences between the two types of shares, it is important to
understand the meaning of these two types of shares.
What are Ordinary Shares?
Ordinary
shares or standard equities are the shares that provide the shareholder's ownership
rights. One share would mean that the shareholder would have one voting right.
The shareholders can cast their vote at the AGM or Annual General Meeting of
the company. Shareholders would receive returns on their capital in the form of
dividends and other benefits when the company is doing well.
What are Differential Voting Right (DVR)
Shares?
DVR
shares are those shares that enable their holders to get higher dividend
earnings. In return, they have to sacrifice their voting rights. These shares
are issued by the company to keep voting power to themselves, rather than
handing over the decision-making power to its shareholders. Any company that
has reported profits in at least the last three preceding years may issue DVR
shares. Some other conditions must also be fulfilled before issuing them. The
value of DVR shares cannot exceed 25% of the shares capital of the company.
Difference Between Ordinary Shares and DVR
shares
|
Ordinary
Shares
|
DVR
Shares
|
|
Shareholders with ordinary shares have higher
voting rights in comparison to DVR shareholders
|
The voting rights of DVR shareholders are
lower in comparison to ordinary shareholders
|
|
The ordinary shareholders get lower dividend
than the DVR shareholders because the company retain the right to vote of DVR
shareholders for taking important decisions
|
Since the DVR shareholders get lower voting
rights, the company compensates them by offering higher dividends
|
|
Ordinary shares are priced higher because
they are not sold at a discount
|
The price of DVR shares would be lower than
the ordinary shares as they are offered at a discount
|
The
above mentioned are some of the common differences between ordinary and DVR
shares. In 2008, Tata Motors became the first company to issue DVR shares. Later
many companies followed this trend. DVR shares have not been a preferred option
in India. Since these shares offer limited voting rights, investors avoid
investing in these stocks. But they can be an effective investment avenue when
dividend returns are considered.
If you
are looking to build a portfolio you may consider DVR shares and invest
accordingly. Indira Securities is one platform where you will get researched
information and reports on stocks. You may even consider opening a demat
account with us. We offer multiple financial services at the most affordable
rates. In case you have queries, you may call or drop us an email.