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- Difference Between Ordinary Shares & DVR Shares
Difference Between Ordinary Shares & DVR Shares
Ordinary shares and Differential Voting Rights (DVR) shares are both types of equity shares issued by companies.
Ordinary shares, also known as common shares, are the most common type of shares issued by companies.
These shares represent ownership in the company and typically come with voting rights, which means that shareholders can vote on important matters related to the company. Important matters such as whether the company should use its free cashflows to fund internal growth, acquire other company, or such critical decisions.
Each ordinary share carries one vote at the company’s annual general meeting (AGM), and shareholders have equal voting rights, irrespective of the number of shares they hold. The dividends paid on ordinary shares depend on the company's profits and are usually paid out after the company has paid its debts and obligations.
While DVR shares, on the other hand, provide differential voting rights to shareholders. This means that DVR shareholders have fewer voting rights than ordinary shareholders, but they may receive higher dividends as compensation. Typically, DVR shares trade at a discount to ordinary shares because they have lower voting rights and fewer dividend rights.
DVR shares were introduced in India in 2008 as a way to allow companies to issue shares with lower voting rights to retail investors.
DVR shares can be an attractive option for investors looking for higher dividends at a lower price.
However, the lower voting rights may make it harder for shareholders to influence important decisions made by the company. On the other hand, ordinary shares offer full ownership, voting rights, and dividends but may be more expensive to acquire.
DVRs are issued to deter hostile takeovers, but only a few companies in India have opted for this type of shares.
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.
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