Difference Between Ordinary Shares and DVR Shares | Espresso

Difference Between Ordinary Shares and DVR Shares

‘One share, one vote’, this was the principle followed by the financial world in India for years, until the 2000s when DVR shares came into existence for the first time. A DVR is a share that might have a lower or higher voting right as compared to an ordinary share.

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But, under Indian law, companies are not allowed to offer equity shares with superior voting rights; therefore, DVRs were introduced to put a limit on the voting rights of equities. So, the DVR shares issues in the Indian stock market have only limited voting rights.

Before we get into the differences between ordinary shares and DVR shares, it is important to understand what these two shares are.

What are DVR Shares?

A DVR share means Differential Voting Right shares. These shares enable companies to raise capital while safeguarding their interests and without diluting the power that the companies’ owners have over the company. Investors who are willing to invest but do not want to be involved in the workings of a company can buy DVR shares.

With DVR shares, the company can control the limit of rights it wants to give to the shareholders. This enables the company to protect itself from a hostile takeover. Without voting rights, shareholders cannot gain control of the company as they will not gain a majority.
Also Read about Cumulative Preference Shares

What are Ordinary Shares?

Shares that help the shareholders get ownership capital of the company are known as ordinary shares or standard equities. Shareholders who buy these shares can vote at the AGMs ( Annual General Meetings) of the company. Any shareholder holding one share of the company has voting rights.

So, these shareholders receive a return for contributing towards the capital requirements of a company. The dividend to be paid to the shareholders is decided by the company. Moreover, the amount of dividends varies as the market is volatile, and there are changes that keep happening all the time.

Difference Between Ordinary shares and DVR Shares

Here are the top differences between ordinary shares and DVR shares

 

Ordinary Shares

DVR Shares

Voting Rights

Investors who own ordinary shares have higher voting rights as compared to investors with DVR shares.

Investors who own DVR have lower voting rights as compared to investors with ordinary shares.

Dividends

The dividend received by the shareholders is lower as compared to DVR shares. But the shareholders have superior voting rights and can take part in the major decisions of the company.

The dividend received by the shareholders is higher as compared to that received by those owning ordinary shares. This is to compensate for the loss of voting rights.

Prices

These shares are not offered at discounted prices, so the investment to buy these shares need to be higher.

Most DVR shares are offered at discounted prices. So, the investment needed to buy DVR shares tends to be lower.

Thus, these are the major differences between ordinary shares and DVR shares.
Also Read: Difference Between Shares & Debentures

Conclusion

These are some of the major differences between ordinary shares and DVR shares. There are significant advantages of investing in DVR shares, but the voting rights are limited, so many investors choose not to invest in these shares. Therefore, you can check which shares are suitable for your portfolio and invest accordingly.

Share Market Knowledge Centre

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Frequently Asked Questions

A DVR share means Differential Voting Right shares. These shares enable companies to raise capital while safeguarding their interests and without diluting the power that the companies’ owners have over the company.

Shares through which the shareholders get ownership capital of the company are known as ordinary shares or standard equities. Shareholders who purchase these shares can vote at the AGMs (Annual General Meetings) of the company.

The major difference between ordinary shares and DVR shares is that DVR shares have fewer voting rights than ordinary shares. But DVR shares fetch better dividends than ordinary shares. Moreover, DVR shares are available at discounted prices, so they need a lower amount of investment.

It depends on the choice of the investor. If you are looking for higher dividends without the hassle of taking part in the decisions of the company, then you can opt for DVR shares. But, if you want superior voting rights, you can opt for ordinary shares.