This report is the second in our series covering the discussion on India’s Draft E-commerce Policy (whose fate still hangs unclear). Read the rest here. "Right now, when you ask investors to give founders preferential voting rights, they'll say 'oh, but that's not standard'. If the law recognizes it, that conversation becomes easier." — Divya Varghese, Induslaw. On September 26th, MediaNama held an open house discussion on the draft national e-commerce policy in Delhi. Notes from that discussion follow. Preferential voting rights Preferential voting rights allow founders to retain voting rights even as they no longer hold a majority of their company's shares. Why founders want preferential voting rights: At the end of the day, investors are there to make money. They are there for the exit. As more and more rounds of investment happen, the founders lose their shareholding, and therefore control of the board. (Varghese) A middle ground for founders: The founder isn't looking at economic interests from shareholding for preferential voting rights. So you could give them shares that have voting rights but no economical interest. So investors have the value appreciation from shares, and founders get the voting rights. (Varghese) A basic version of preferential voting shares: Right now, it's more common for founders to have veto rights than differential voting rights. It was only recently that private companies were allowed to exempt themselves from Section 43 and 47 of the Companies Act, which governs the type of shares that a company can have. (Varghese) Why e-commerce companies don't have preferential voting: The…
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