Maximizing Potential: Exploring The Allotment & Issuance Of New Shares In Singapore

The process of allotment and issue of shares is an integral part of corporate governance in Singapore, which involves creating and assigning shares to potential company members. Many businesses carry out this activity for multiple purposes, such as raising capital for future plans or engaging shareholders. However, whatever the reasons behind their actions are, it is always critical to balance the rights of existing and new shareholders and align with the regulations of the activity.

This article aims to address the needs and concerns of your business by exploring the common reasons for allotting and issuing shares, outlining the formalities required for compliance, and providing practical guidance on conducting the process effectively.

What is the allotment and issue of shares?

Regarding new shares in a company, the terms ‘allotment’ and ‘issue’ are often used interchangeably, but they have distinct legal meanings.

Allotment refers to the act of assigning a certain number of shares to a person, even though the specific shares might not be identified. Under the Companies Act 2006, shares are considered ‘allotted’ when a person has the unconditional right to have their name included in the register of members for those shares.

However, the shares are officially ‘issued’ when the person’s name is entered in the register of members, indicating that the entire application, allotment, and registration process has been completed.

In simple terms, allotment is the assignment of shares, while issuance is the completion of the registration process to become a company member.

Common reasons to allot and issue shares

Businesses often utilize the allotment of new shares to raise capital, but that is just one of many reasons businesses decide to issue new shares. The potential issuance of new shares can serve businesses in various ways, including:

• Capital raising

One of the primary reasons for issuing shares is to raise capital. By issuing new shares, companies can generate funds to finance various activities, such as expanding business, investing in research and development, acquiring assets or other businesses, or paying off debts. Share issuance provides a direct way to access capital from investors.

• Employee retainment

Companies may allocate shares to their employees as part of employee stock option plans or other incentive schemes. This helps attract and retain talented employees by providing them with an ownership stake in the company. Issuing shares to employees aligns their interests with the company’s performance and can serve as a motivational tool.

• Debt conversion

Under certain circumstances, when a company faces financial difficulties and is burdened with debt, one possible approach is to allot shares to the lender as a means of debt conversion. However, this strategy carries inherent risks as it may result in the dilution of existing shareholders’ ownership and erode their trust in the company. It is crucial to exercise caution and consider this option only as a last resort in desperate times.

• Regulatory fulfillment

Companies may be required to issue shares to meet regulatory obligations. For example, if a company plans to go public and list on a stock exchange, it typically needs to issue shares to the public as part of the initial public offering (IPO) process. This ensures compliance with regulatory frameworks and allows the company’s shares to be traded on the open market.

Formalities required when allotting and issuing shares

When it comes to allotting or issuing new shares, it is crucial for your business to adhere to the relevant rules and regulations set forth by the company’s bylaws and governing authorities. Here are the general formalities of an allotment that the company should take into initial consideration:

Decide the types of shares to issue

In order to issue new shares, the company itself has decided which kind of shares it will put on the market.

Each type of share is attached to different rights, redemption rules, and benefits. Make sure you have a good understanding of each share type and choose the right one that reflects your company goals, needs, and preferences.

Get shareholders’ approval to allot share

In public companies and private companies with more than one class of shares, you will need shareholders’ approval to issue shares, which can be given via written documents or through voting. Either way, you’ll need approval from the majority of shareholders (more than 50%).

In the cases below, directors can directly issue new shares without asking for the approval of shareholders, unless the articles of association say otherwise:

• when the issue is proportional to the existing shareholding of the company
• when the company is private limited with just one class of shares
• when issuing shares in an employee’s share scheme

Notice shareholders about pre-emptive rights

Preemptive rights, or rights of first refusal, are the rights given to existing shareholders to maintain their proportional ownership. Such rights give shareholders the first priority to purchase new shares before they are offered to external investors.

When a company decides to allot or transfer shares, the directors need to send a notice to inform existing shareholders and see if they want to exercise their pre-emptive rights. If the shareholders are not interested in obtaining additional shares, they can sign a consent form to waive their pre-emption rights.

This mechanism allows shareholders to actively participate in the decision and exercise their rights, while also providing a streamlined process for those who choose to forgo their pre-emptive rights.

How to conduct allotment and issue of shares?

To conduct the allotment and issuance of shares, you need to ensure that the shares are not issued at a discount to their par or nominal value, maintaining their proper valuation.

The complete procedure of allotting shares can be done as follow:

Step 1: Pass the resolution

The company will need to pass the resolution to officially issue new shares, which can be done in three ways:

• Passing a written shareholders’ resolution

The company directors will draft a written resolution that states the number of shares to be issued.

If the shareholders agree with the share issuance, they can approve by signing the document and returning a copy to the company.

• Passing an ordinary resolution

This method is more complicated as it requires the holding of an annual general meeting for shareholders to discuss and vote.

The shareholders can vote on the resolution either by hand or by poll. An ordinary resolution requires more than 50% of votes to pass.

• Passing a board resolution

In case the director has the authority to issue shares without having to consult shareholders, it is required to pass the board of directors’ resolution in order to carry the issuance of shares.

Once the company meets the required number of approval to pass a resolution, it can issue shares.

Step 2: Filling a return of allotment with ACRA

Within 14 days of issuing the shares, the company must file a return of allotment with the Accounting and Corporate Regulatory Authority (ACRA) through BizFile. This return of allotment includes important details such as:

• the number of shares issued,
• the amount paid for each share,
• any unpaid amount on the shares,
• the class of shares (if applicable), and
• details of shareholders (e.g., names, identification, nationality, and address)
• the corporation name, UEN, and address for corporate shareholders
• the return of allotment also specifies the number and class of shares held by each member of the company.

If you require assistance with filling the return with ACRA, Our Corporate Secretary service is here to help.

Step 3: Produce share certificates

The procedure ends with the issuance of share certificates, which proves the ownership of shares. The period of time for issuing the certificate is after 15-30 days after filling out the return

The certificates should include the following information:

• name of the company
• class of shares
• the number of shares each certificate represents

Conclusion

In conclusion, having a solid grasp of the allotment and issuance of new shares is essential for companies seeking to raise capital and engage shareholders. By following the necessary requirements, such as ensuring preemptive rights, getting approval from shareholders, and filing a return of share allotment, businesses can make informed decisions, protect shareholder interests, and facilitate growth and strategic initiatives.

If you need more information about the allotment and issue shares, feel free to contact us at service@bbcincorp.com, our team is more than happy to support you.

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