Ordinary Shares vs DVR Shares What's the Difference?
‘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.
Published on 23 March 2023
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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.
DVR shares are different from ordinary shares in two key ways:
Voting rights: DVR shares have fewer voting rights than ordinary shares. This means that DVR shareholders have less say in how the company is run.
Price and dividends: DVR shares are typically offered at a discount to ordinary shares, and they pay higher dividends. This is to compensate investors for their reduced voting rights. Other rights of DVR shareholders: DVR shareholders have the same rights as ordinary shareholders with respect to other matters, such as receiving bonus shares and rights shares.
Overall, DVR shares are a good option for investors who are looking for a higher dividend yield and are willing to give up some voting rights in return.
Here is an analogy that may help to illustrate the difference between DVR shares and ordinary shares:
Imagine that a company is like a country. Ordinary shareholders are like citizens, and they have the right to vote in elections and choose their leaders. DVR shareholders are like non-citizens, and they do not have the right to vote. However, non-citizens may still enjoy other rights, such as the right to live and work in the country.
In the same way, DVR shareholders have fewer voting rights than ordinary shareholders. However, DVR shareholders still enjoy other rights, such as the right to receive dividends and bonus shares.
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.
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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.
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Choosing the right stocks for trading and investment purposes can be a little difficult and tricky, especially when you are only starting your journey in the stock market. But is it all that difficult? Not if you know what parameters you need to select your stocks.
The term ‘debenture’ is derived from the Latin word ‘debere’, which means to borrow. Debentures are the debt of a company. They include medium to long-term debt or loans that the company avails to raise capital for its operations or expansion.
There are eight stock exchanges in India, out of which the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two prominent ones. If you wish to invest in the share market, you must do it via these stock exchanges. However, as per the Securities and Exchange Board of India (SEBI) guidelines, a common man cannot trade directly with the stock exchanges.
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.
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