By paying for the shares, an investor is buying partial ownership of a company and becomes a shareholder. A shareholder may be an individual, a company or a limited liability partnership.
Different types of shares
A company may issue different types (also known as “classes”) of shares. These can include:
1. Ordinary Shares
Ordinary shareholders also receive less dividends compared to shareholders who hold preference shares. Companies may divide their ordinary shares into different classes (e.g. “A” and “B”) with different rights attached to each class.
2. Preference Shares
Preference shares confer some preferential rights on the holder, superior to ordinary shares. Normally, the preferential rights are the rights to fixed dividends, priority to dividends over ordinary shares and to a return of capital when the company goes into liquidation.
3. Redeemable Preference Shares
Redeemable preference shares allow for the repayment of the principal share capital to shareholders. The company may redeem these shares at an agreed value on a specified date or at the discretion of the directors. This is on the condition that the company is a going concern.
Any redemptions can be paid out of the company’s capital using proceeds from a fresh issue of shares. The directors must lodge a solvency statement with ACRA under the “Notice of Redemption of Redeemable Preference Shares” transaction via BizFile+.
4. Convertible Preference Shares
Convertible preference shares usually carry rights to a fixed dividend for a particular term. At the end of the term, the company can choose to convert it into ordinary shares or leave them as they are. Conversion prices must be specified in the company’s constitution. If the price of an ordinary share rises, the conversion prices will not follow. It is essentially allowing the shareholder to purchase ordinary shares at a lower price. The transaction can be filed in the BizFile+ under “Conversion of Shares”.
5. Treasury Shares
Treasury shares are the company’s ordinary shares which have been acquired from shareholders. The company will be listed as the owner of the shares but is not allowed to exercise the right to attend or vote at meetings, and no dividends may be paid to the company.
The treasury shares that a company holds must be less than 10% of the total number of shares in that class. Below is an illustration of this legal requirement.
Any treasury shares in excess of 10% must be cancelled or disposed of within 6 months. The company may sell, cancel or transfer the treasury shares.
What rights do shareholders have?
Shareholders are only liable for the amount they have invested in the share capital. They enjoy certain rights depending on the type of shares they own. These rights can include any or all of the following:
- To ensure that the directors comply with the regulations in the constitution of the company.
- To receive reports and other information.
- To inspect minutes of general meetings of the company.
- To restrain ultra vires (acts that are completed without the necessary legal authority) and illegal acts.
- To vote on major corporate matters such as the alteration of the constitution.
- To receive a portion of the dividends declared by the company.
- To attend, speak and vote at general meetings.
- To receive annual financial statements, reports and other information about the company.
- To be treated fairly.
- To be entitled to a return of a share of the proceeds should the company go into liquidation.
- To enjoy the rights promised to their share class.
- The default rule for shareholders’ voting rights is one vote per share.
However, the voting right is subject to the rights and restrictions attached to the class of shares and voting method. On a voting by show of hands, every member or his representative who is present has one vote. On a poll every member present in person or by proxy or by attorney or other duly authorised representative has one vote for each share the member hold
Allotment of shares
An allotment of shares is when a company issues new shares in exchange for cash or otherwise. Such allotment of new shares increases the company’s share capital. Private companies can allot new shares only after filing the “Return of Allotment of Shares” transaction via BizFile+. Public companies limited by shares can allot new shares anytime and must file the “Return of Allotment of Shares” transaction within 14 days from the date of allotment.
The company’s constitution may give its directors the power to decide on the number of new shares to be issued, the terms which they will be issued and the price subject to compliance with Section 161 of the Companies Act. However, regardless of what is provided in the constitution, all company directors must first seek approval through a general meeting before proceeding with the share allotment.
Shares may be allotted for cash or for a consideration otherwise in cash. Some reasons include:
- Due to a contract, which can be written or not
- Due to a provision in the company’s constitution
- In exchange for payment of dividends to a shareholder
If your company is issuing shares other than in cash, you must attach a copy of the relevant documents (e.g. the sales and purchase agreement, a contract or Order of Court) when submitting the “Return of Allotment of Shares” transaction via BizFile+.
Before filing the Return of Allotment of Shares for your company, you will need to prepare the following information:
- Number of shares allotted.
- Amount paid (if any) or deemed to be paid on the allotment of each share.
- Amount (if any) unpaid on each share.
- Class of shares that are being issued.
- Updated list of shareholders and their shareholdings. This list should include:
- Personal particulars of each shareholder, such as full name, identification number, nationality and address
- Number and class of shares held by each of the members.
Public companies that are not listed on the Singapore Exchange only need to list out the 50 members with the most number of shares in the company, excluding treasury shares. Listed public companies need not provide this information.
Transfer of shares
Shareholders can transfer shares to other shareholders. Existing shareholders can transact with an existing shareholder or with a new shareholder, subject to the provisions of the company’s constitution. Any transfer of shares will need to be in compliance with the constitution. Only fully paid shares can be transferred.
In such transactions, the company does not get paid and the transfer of shares is not initiated by the company. Nonetheless, the company must notify ACRA if there is a transfer of shares in the company by filing the “Transfer of Shares/Update List of Members” transaction via BizFile+.
The transfer does not take effect until ACRA updates the company’s Electronic Register of Members (EROM) to reflect the shares transaction. As shareholders are usually also members of the company, the EROM must be updated whenever there are changes in the shareholdings.
Converting to different share classes
Shares can be converted from one class to another by way of special resolution or by lodging a notice with ACRA. However, non-redeemable preference shares cannot be converted into redeemable preference shares.
The conversion of shares may take place following a sale or company reorganisation or simply for administrative, historical or family reasons where shareholders choose or need to hold a different class of shares. This could be where ordinary shares are converted into one or more classes of alphabet shares (A, B, C, etc.) or in more complex arrangements, converted into certain types of preference or redeemable shares.
If your company wants to convert its shares, you need to file a “Conversion of Shares” transaction via BizFile+.
Share classes are powerful tools to use when you are running an early-stage startup or company with limited resources. Shares can be accrued to a point until targets are met or deliverables are approved, before actually issuing them. Hence this provides company owners with a low-risk way of getting collaborators to help the business.