The Union Government liberalized rules that would allow Indian companies to raise share capital without diluting the voting rights of all existing shareholders. The move is expected to help promoters retain control when they raise capital from new investors. The changes are expected to benefit India Inc., startups, which will be able to attract more capital, but without ceding control.
The Companies (Share Capital and Debentures) Rules of 2014 allowed the issue of shares with differential voting rights, subject to riders the business should have distributable profits for the previous three years, and the capital raised through shares with differential voting rights must not exceed 26% of the post-issue capital. Differential voting rights also allow investors to take a substantial stake in a company and be a financial investor without voting rights, crossing a threshold that may mandate an open offer.
The Securities and Exchange Board of India(SEBI), had issued a discussion paper on the subject earlier this year. Subsequently, it cleared the framework for listed companies in June. Companies Act and rules apply to all companies, while Sebi requirements apply to listed companies.
Allowing businesses to access capital easily and at a lower cost was a key demand of the industry at a time the government is under pressure to revive a slowing economy.
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