Differential Voting Rights (DVRs) shares give the shareholder either higher voting rights or lower voting rights compared to the ordinary shareholders of the company.

Higher voting rights in a ratio of 10:1 would mean 10 votes per share held. Lower voting rights in a ratio of 1:10 would mean 1 vote for 10 shares held.

However, Indian regulations do not allow companies to issue equity shares with higher voting rights, therefore the DVR shares issued in the market are those with limited voting rights.

They are traded on the stock exchange just like ordinary shares but generally at a discount and with a higher dividend.

Let’s look at Tata Motors vs Tata Motors DVR to understand this better.

A Tata Motor DVR has 10% voting right as compared to an ordinary Tata Motor share.

Reasons for issuing DVRs

Prevention of hostile takeover

Since DVRs are issued with limited voting rights they do not dilute the promoters voting rights and make it difficult for hostile takeovers.

Bring in Passive/Retail investors.

Passive/Retail investors may not want to indulge in the managerial operations of a business in which they are investing. In most cases, such investors are looking to only make profits. DVR shares are ideal as investors can focus on the dividend generation aspect, without needing to deal with the decision making aspect of the company. DVR shares are offered at a discount when compared to ordinary shares because of the lower voting rights. In turn, more shares can be acquired by investors at a lower price, thus increasing their dividend earning potential.