15-02-2017, 12:38 PM
In short, shares represent ownership in a company. When a company is created, the founders of the company must determine who owns the company. Often the founders also become the first shareholders of the company. The first and most important step in establishing a Singapore company is to determine who owns how many shares. This is generally expressed as a percentage of the total number of shares and this percentage is very important for each founder.
![[Image: images?q=tbn:ANd9GcRLA1bVTFDcMdmtJ7g1Y4D...L-rE5JhEbw]](https://encrypted-tbn2.gstatic.com/images?q=tbn:ANd9GcRLA1bVTFDcMdmtJ7g1Y4DhzFJA2ZChex028cckhxwsL-rE5JhEbw)
This article provides a high-level overview of the nature of the shares and different classes of shares and is intended for first time entrepreneurs of Singapore companies. Please note that this is neither a complete compilation of all relevant information on this subject nor a substitute for professional advice. The most popular definition of a company's share was originally expressed by the judge in Borland Trustee Superior Court v Steel Brothers & Co Ltd [1901]: "A share is the interest of a shareholder in the company measured by a sum of Money, for the purpose of liability first, and interest in the second, but also consists of a number of mutual agreements held by all shareholders inter se in accordance with ... the Companies Act. "
![[Image: 360364_gallery_564dedf480d52_jpg_fa_rszd.jpg]](http://static.bitlanders.com/users/galleries/360364/360364_gallery_564dedf480d52_jpg_fa_rszd.jpg)
Essentially, the definition characterises the actions as a set of rights and obligations that are given to the shareholder in exchange for investing in the company. The shareholder does not have a legal or beneficial interest in the assets of the company, since a fundamental principle of company law is that the company is an independent legal entity. Instead, shareholders, by virtue of their ownership of the shares, are entitled to participate in accordance with the terms of the company's constitutional documents, provided that the company is a going concern, and they are entitled to participate in The assets of the company if and when the company ends.
Share Classes
Although share classes are more common in corporations, it is not uncommon for private corporations to issue shares of different kinds, especially as they flourish, to meet the needs of different stakeholders. For example, a limited liability company may wish to vary dividends payable to different shareholders, create non-voting shares for family members or redeemable preferred shares for employees.
Since Singapore law is flexible in creating share classes, there are no special restrictions on issuing shares with different rights. Share classes may refer to any name, such as "preferred shares" without voting rights, "management shares" with additional voting rights, "alphabetic shares" such as A shares and B shares. These share classes have no Legal definition, so that their associated rights would have to be defined in the Constitution, or in the Resolution that creates the particular class of actions.
Some typical classes of actions, and their associated rights, are:
• Ordinary Shares: Most companies hold common stock. These shares entitle (a) 1 vote per share, (b) participate equitably in dividends, and © a share in the surplus capital in the event of liquidation of the company.
• Non-voting shares: These shares do not have the right to attend general meetings or to vote. Preferred shares often do not have the right to vote. Non-voting shares are commonly issued to: (a) the employees of the company (so that part of their remuneration is paid as dividends as an incentive to employees), and (b) the principal members of the shareholders.
• Redeemable shares: These shares are issued under conditions that the company, or can, will buy at some future date. These shares entitle holders to the right to repay their capital either at a fixed date or at the company's option.
• Preferred shares: These shares have preemptive rights over ordinary shares, usually with respect to dividends (for example, fixed amount of dividends or, alternatively, participating in profits beyond the fixed dividend according to a fixed formula). These actions may also take priority over the return of capital on liquidation (but they are not entitled to participate in surplus capital). Often, preferred shares do not have voting rights and may be exchangeable.
• Deferred common shares: These are shares on which no dividend is paid until other classes have received a minimum payment.
• Management actions: These are shares that have additional voting rights, in order to allow certain shareholders to retain control of the company. Such shares are often used to allow the original founders of the company to maintain control after additional shares have been issued to outside investors
• "Participation in the alphabet": Some companies may wish to create different classes of ordinary shares (commonly called "Class A", "Class B", "Class C", etc.) To allow directors to pay different dividends on different shares), or to divide certain rights among shareholders.
This article provides a high-level overview of the nature of the shares and different classes of shares and is intended for first time entrepreneurs of Singapore companies. Please note that this is neither a complete compilation of all relevant information on this subject nor a substitute for professional advice. The most popular definition of a company's share was originally expressed by the judge in Borland Trustee Superior Court v Steel Brothers & Co Ltd [1901]: "A share is the interest of a shareholder in the company measured by a sum of Money, for the purpose of liability first, and interest in the second, but also consists of a number of mutual agreements held by all shareholders inter se in accordance with ... the Companies Act. "
Essentially, the definition characterises the actions as a set of rights and obligations that are given to the shareholder in exchange for investing in the company. The shareholder does not have a legal or beneficial interest in the assets of the company, since a fundamental principle of company law is that the company is an independent legal entity. Instead, shareholders, by virtue of their ownership of the shares, are entitled to participate in accordance with the terms of the company's constitutional documents, provided that the company is a going concern, and they are entitled to participate in The assets of the company if and when the company ends.
Share Classes
Although share classes are more common in corporations, it is not uncommon for private corporations to issue shares of different kinds, especially as they flourish, to meet the needs of different stakeholders. For example, a limited liability company may wish to vary dividends payable to different shareholders, create non-voting shares for family members or redeemable preferred shares for employees.
Since Singapore law is flexible in creating share classes, there are no special restrictions on issuing shares with different rights. Share classes may refer to any name, such as "preferred shares" without voting rights, "management shares" with additional voting rights, "alphabetic shares" such as A shares and B shares. These share classes have no Legal definition, so that their associated rights would have to be defined in the Constitution, or in the Resolution that creates the particular class of actions.
Some typical classes of actions, and their associated rights, are:
• Ordinary Shares: Most companies hold common stock. These shares entitle (a) 1 vote per share, (b) participate equitably in dividends, and © a share in the surplus capital in the event of liquidation of the company.
• Non-voting shares: These shares do not have the right to attend general meetings or to vote. Preferred shares often do not have the right to vote. Non-voting shares are commonly issued to: (a) the employees of the company (so that part of their remuneration is paid as dividends as an incentive to employees), and (b) the principal members of the shareholders.
• Redeemable shares: These shares are issued under conditions that the company, or can, will buy at some future date. These shares entitle holders to the right to repay their capital either at a fixed date or at the company's option.
• Preferred shares: These shares have preemptive rights over ordinary shares, usually with respect to dividends (for example, fixed amount of dividends or, alternatively, participating in profits beyond the fixed dividend according to a fixed formula). These actions may also take priority over the return of capital on liquidation (but they are not entitled to participate in surplus capital). Often, preferred shares do not have voting rights and may be exchangeable.
• Deferred common shares: These are shares on which no dividend is paid until other classes have received a minimum payment.
• Management actions: These are shares that have additional voting rights, in order to allow certain shareholders to retain control of the company. Such shares are often used to allow the original founders of the company to maintain control after additional shares have been issued to outside investors
• "Participation in the alphabet": Some companies may wish to create different classes of ordinary shares (commonly called "Class A", "Class B", "Class C", etc.) To allow directors to pay different dividends on different shares), or to divide certain rights among shareholders.
