Inequality In Equity – Evaluating Differential Rights

Introduction

The rights of shareholders are determined based on the instruments they hold against capital (whether in the form of share capital, debt, or hybrid) invested. The Companies Act, 2013 ('Companies Act') allows a private company limited by shares to have varied kinds of share capital – not just equity share capital and preference share share capital. Such flexibility allows private companies to structure their share capital so that relevant persons (whether founders or appropriate authorities in the case of public-private participation projects) can exercise management control concerning critical matters, even while their ownership level dips.

However, public unlisted companies and publicly listed companies may have only two kinds of share capital – namely, equity share capital and preference share capital. Within the category of equity share capital, such equity shares may have voting rights or differential rights as to dividend, voting or otherwise