Guide to Selecting Your Shareholding Structure in Singapore

selecting business structure

While you have spent much of your time on creating your business’ new product or solution, you are also encouraged to pay close attention to your company’s shareholding structure and how you distribute your company’s ownership among its founders, investors, and employees. This is to prevent a loss of control of your company, especially when diluting ownership or going public. In this article, we provide you with an overview of shares, ownership rights and classes of shares to help you decide your company’s shareholding structure.

 

What is a Share?

A simple definition of a share is a unit of ownership interest in a company. It is usually given to a shareholder in exchange for his investment or contribution, and provides for an equal distribution of profits in the form of dividends. Shareholders may either hold their shares, or sell or transfer their shares.

As such, in return for investing in your company, you may give your shareholder some rights in your company which vary depending on the type and class of share. While most companies have only one class of shares – ordinary shares – you may create different classes of shares to differentiate between founders, investors and employees. Each class of shares may come with different shareholder rights.

 

Types of Shareholder Rights

The three most common rights for shares are as follows.

  1. Voting Rights
    Each ordinary share usually carries one vote at general meetings, but you may also choose to issue shares without voting rights, or shares with multiple votes. This is the right that businesses consider most important as it directly affects control of the company.
  2. Profit-sharing Rights
    A company’s profits are distributed among shareholders based on the number of shares they have, in the form of dividends. However, your company has control over how the dividends are distributed. This is because some classes of shares may entitle a shareholder to more dividends, and some less.
  3. Liquidation Rights
    If a company is liquidated and all its creditors are paid, the remaining assets can be divided among shareholders. These assets are usually distributed to shareholders in proportion to their shareholding. If shares are divided into different classes of shares, your company may choose to provide for some shares to be given priority in the distribution of such assets.

 

Classes of Shares

As your company grows, it may issue different classes of shares to accommodate its growing number of stakeholders. The different classes can be named differently in different companies, and each class of shares can have different shareholder rights. The main types of shares include:

  • Ordinary Shares
    Most companies only have ordinary shares. Ordinary shares usually carry one voting right each and entitle shareholders to receive dividends equally. If the company is liquidated, ordinary shareholders usually have a share in the company’s residual assets.
  • Non-voting Shares
    Like its name suggests, non-voting shares carry no voting rights. Shareholders also have no right to participate in general meetings. Non-voting shares are usually issued to employees and family members, as issuing dividends can sometimes be more tax-efficient for both the company and employee.
  • Redeemable Shares
    Redeemable shares are shares issued on terms that the company will, or may, buy them back at a future date. This date may be pre-fixed or set at the company directors’ discretion. As such, shareholders will be required to sell their redeemable shares back to the company.
  • Preference Shares
    This class of shares entitle the shareholder to fixed dividends. Preference shareholders usually receive payment before ordinary shareholders, and this makes a difference especially if the company is struggling or is entering bankruptcy.
  • Management Shares
    Management shares are generally held by directors of a company and come with enhanced voting rights. Management shares may come with as many as 10 votes each, or are based on a small nominal value such that there are more shares, and hence more votes. For instance, the founder of Zynga, the social video games company, once held shares with 70 votes each. He has since converted his shares, and now, all Zynga shares are worth one vote each.

 

Incorporating a Company in Singapore

To set up a local company in Singapore, you must have at least one shareholder. You will need to provide the personal identification details, contact information (telephone number and e-mail address), and residential address of each shareholder upon incorporation. Private limited companies in Singapore may appoint a minimum of 1 and up to 50 local or foreign shareholders.

Singapore companies may be owned by foreign persons or entities. As such, foreign individuals or foreign companies can have 100% shareholding of a Singapore company.

You must also indicate the amount of issued capital i.e. the total amount that shareholders have paid for their shares. The minimum issued capital must be at least SGD 1. However, if you are applying for a relocation visa under the Entrepreneur Pass (EntrePass), your company must have a minimum paid up capital of SGD 50,000. Minimum paid up capital requirements may also apply for regulated businesses such as travel agencies, recruitment firms and financial services companies.

 

Let Corporate Services Singapore Guide You

Business owners should give careful thought on the right type of shareholding structure that would suit their needs at each stage of growth. At Corporate Services Singapore, our incorporation specialists will run through shareholding structure options and capital structure options in detail with you to help you attract potential investors for your start-up.

At Corporate Services Singapore, we assist start-ups with their business development needs. From registration procedures to providing expert advice on company incorporation, keep your business’ compliance status in tip-top shape with Corporate Services Singapore.

Corporate Services Singapore offers a complete suite of solutions, such as company registration, corporate secretarial, outsourced accounting, audit, tax and other professional corporate services to ensure that your business runs smoothly from Day 1. To keep up with the latest regulatory updates while remaining compliant, get in touch with us today.

Posted in Company Incorporation.