An Overview of Shares and its Relation to Shareholders

Shareholder

According to the Singapore Companies Act, at least one shareholder is required during company incorporation. A shareholder is an individual or a legal entity, both local and foreign, and can be assigned as director of the company.

Shareholders become as such through ‘shares’ so it is not uncommon for the founders to also become the first shareholders of the company.

Because shares represent ownership, control, and influence over almost every aspect of the business, it is a very important step for the company to determine the total number of shares of a particular shareholder.

Nature and Characteristics of Shares

A share refers to a certain amount of money invested by the shareholder for the business of the company in return for special rights and specific obligations within the company.

The shareholder, in effect, is entitled to participate, take action, and make decisions in accordance to the constitutional documents of the company.

Shares are issued to shareholders, in the form of share certifications, either during company incorporation or when the time that the company experiences growth and development.

Different Classes of Shares

It is common for public limited companies in Singapore to issue different classes of shares to accommodate the varying needs and expectations of shareholders.

Nowadays, even private limited companies follow the same action for the same reason especially when Singaporean law provides no special restrictions regarding the issuance of shares with different rights.

  1. Ordinary Shares. These are the most common class of shares among many companies which give the shareholders the right to vote as well as get equal participation in business dividends and surplus capital during the company’s winding up.
  2. Non-Voting Shares. These shares do not provide shareholders any privileges to vote, attend general meetings, or take necessary business actions. It is usually issued to family members of the main shareholders as well as company employees that can be converted into remuneration, dividends, or financial incentives.
  3. Redeemable Shares. These shares allow shareholders to receive repayment of their capital either as an optional action of the company or at a fixed future date that is set by the company.
  4. Preference Shares. These shares provide shareholders special privileges that are not enjoyed by ordinary shareholders such as:
    1. receipt of a fixed amount of business dividends;
    2. participation in profits beyond the fixed business dividends,
    3. Getting priority treatment for the return of capital during the company’s insolvency.
    4. Deferred Ordinary Shares. These shares can only be received by or granted to the shareholder after other classes of shares have already been issued a minimum payment.
    5. Management Shares. These shares grant shareholders extra voting rights for the main purpose of retaining control of the company in case additional shares have been issued to non-management individuals or legal entities. It also allows shareholders to gain more influence when it comes to decisions such as alterations to the constitution, proposal of resolutions, appointments of directors, etc.
    6. Alphabet Shares. These are different classes of ordinary shares that companies create in order to set boundaries or create distinctions among the rights and privileges of ordinary shareholders. These can be issued as ‘Class A’, ‘Class B’, ‘Class C’, and so forth.

    Privileges of Shareholders in Singapore

    1. Voting Rights

      Among the responsibilities and privileges of shareholders in Singapore companies include the right to vote at General Meetings based on the votes carried by their Company Shares.

      • Appointment, continuation, or removal of an individual to the board of directors
      • Appointment, continuation, or removal of an auditor
      • Decision on remuneration package received by directors or auditors
      • Method of income, dividend, and profit distribution of the company
      • Alteration, repletion, or adoption of any part of the company’s Articles of Association
      • Increase or reduction of the share capital
    2. Rights to Make Resolution Proposals or Pass Resolutions

      Shareholders make decisions that can influence the business and can affect the company. This is done through the proposal and passing of resolutions. Resolutions can either be ordinary (requiring 50% consensus among voting shareholders) or special (requiring 75% consensus among voting shareholders).

    Types of Decisions that are Passed Through Ordinary Resolutions:

    • Appointment of auditors
    • Fixing of remuneration of auditors
    • Replacement of retiring directors
    • Consideration of the accounts and balance sheets of directors and auditors

    Types of Decisions that are Passed Through Special Resolutions:

    • Change in company name
    • Increase or reduction of the share capital
    • Alteration of object clauses in memorandum
    • Alteration, repletion, or adoption of any part of the company’s Articles of Association
    • Voluntary insolvency

    Responsibilities of Shareholders in Singapore

    1. Financing

      One of the main responsibilities of shareholders is to provide funding for the business of the company or to find investors that will raise funds.

      When start-up businesses or private companies allow outside investors to become venture capital backers, these select individuals or legal entities are entitled to shares within the company.

    2. Operations

      Shareholders can play a direct and an active role in the company’s overall operations. These include the abovementioned voting rights as well as supervision of key officers and staff within the company.

      Shareholders can also play an indirect role for the company through the stock market. Investors are attracted to businesses that have the capacity and proof to meet sales as well as beat profit projections because it means taking part on the surplus cash from these business ventures.

    3. The Importance of Having Different Classes of Shares in Your Singapore Company

      Under the Singapore Companies Act, a company has the right to issue different classes of shares to its various shareholders for the purpose of accommodating the needs and expectations of these individuals or legal entities as well as for the best interest of the company.

      The main importance of issuing different classes of shares is for the founder/s to maintain substantial control over the company, particularly in its essential business operations:

      • Even if the founders have minority shares in the company
      • Even when shares are issued to external investors
      • Singapore law makes it easy for both local and foreign investors to get involved in start-up companies because of the availability of different classes of shares that will allow them: to have greater control in the management or business operations of the company; or to gain assurance of a definite, regular, or long-term return of their investment in the company.

      Corporate Services Singapore: Providing Professional Assistance About Regulations Of The Companies Act

      If your company finds it essential to issue different classes of shares during your company incorporation, it is important to understand the rights and privileges that different classes of shares will grant to the shareholders.

      For professional assistance about the regulations of the Companies Act, let Corporate Services Singapore guide you from the onset. Contact our specialists today.

Posted in Company Incorporation.