A share represents ownership in a company and comes with certain rights and obligations for the shareholder. The share structure of your Singapore company can be as simple or as complex as you wish, depending on your needs. Let’s take a look at what share structures are available to your company in Singapore and how you would use them.
Two common classes of shares are
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Ordinary shares
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Preference shares
What are Ordinary Shares?
Ordinary shares, also known as equity shares, are the most common class of shares, and many private limited companies are incorporated with ordinary shares. They have no special rights or restrictions. Ordinary shares rank under the preference shares in terms of dividend distribution and/or voting rights.
Typically, ordinary shares have the following rights:
- Each share has its voting rights
- Each share has rights to dividends
- Each share can participate in a distribution arising from a closing/winding up of a company
Administration of ordinary shares is straightforward as each share has voting rights and rights to dividends.
You may choose to have different classes of ordinary shares, such as ‘Class A Ordinary Shares’ and ‘Class B Ordinary Shares’ which have different rights such as “Voting right” “Right to dividends”, etc. Singapore company shares continue to have no par value, offering flexibility in issuance at different values, though companies must now consider BEPS 2.0 implications for tax planning at any point in time.
Non-Voting Ordinary Shares
These shares may have voting restrictions placed upon them, e.g. non-voting ordinary shares can only vote for certain reserved matters as stipulated in the constitution or shareholder agreement. They may even have no voting rights at all, or not be able to attend meetings, depending on the company’s constitution. Beyond their voting restrictions, they will generally have the same rights as other classes of shares as per the constitution.
What are Preference Shares?
Normally, the Preference Share will have the preferred right over the ordinary share in the event of liquidation and distribution of profit.
Preference shares are usually non-voting shares, but they can also have voting rights based on the constitution or only have a vote when their owed dividend has not been paid.
Usually, if your business wants to get money from careful investors who want a stable and safer way to make money, you typically issue preference shares. Preference shares maintain priority on dividends, though companies with cross-border interests must account for BEPS 2.0 rules on tax treatment for dividends.
Redeemable Preference Shares
Redeemable shares allow the company to redeem the shares if they wish to do so in the future. Less commonly, it might also mean that shareholders would also have the option to sell them back to the company.
The option to redeem the shares could happen on a certain date, generally, the redemption price of this class of shares will depend on the terms laid out in the constitution. It should also be noted that a company can only redeem these shares out of its profits and new share issue proceeds, which may make it harder to redeem in the first place.
Cumulative Preference Shares
This class of share has a cumulative dividend in the event if a Singapore company is unable to pay a dividend in full on a particular year, then the amount in arrears will be paid when the company has enough to pay a said dividend. Lower class shareholders don’t get paid dividends until all of the arrears are paid for cumulative preference shareholders.
How to Name Your Different Share Classes for Your Singapore Company
There are some general guidelines that most Singapore companies will adhere to when naming their different share classes, but in fact, you can name them whatever you like. It’s for this reason that you shouldn’t assume that ‘Class A’ shares in one company mean the same thing as ‘Class A’ shares in another company. If you want to know exactly what a share class name means, you’ll need to look it up in that company’s constitution.
As long as the constitution allows, a Singapore company can:
- Create a new share class in addition to existing share classes
- Convert an existing share class into a new share class
Conclusion
Generally, most Singapore companies will start off with just one class of ordinary shares, with equal rights to voting, dividends, and capital. If the company issues different share classes in the future, shareholders can own different classes of shares.
The issue and management of different share classes can be complex. However, it can be a relatively smooth process if you have an experienced service provider for timely guidance and support.
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