As one of Asia’s most vibrant financial hubs, Singapore offers many investment opportunities for savvy investors. Among the various options available, shares or stocks are a popular choice for those looking to participate in the dynamic world of stock markets.
Different shares come with distinct degrees of ownership, rights, and privileges to the company and its shareholders. From established blue-chip companies to innovative startups, by mastering each type’s features, business owners can optimize their share system to maximize the efficiency in organization structuring, capital raising, authority allocating, and so forth.
In this article, we will delve into the types of shares available in Singapore, providing you with a comprehensive overview and characteristics of each kind.
Introduction to common types of shares in Singapore
In Singapore, there are various categories of shares available for investment. From real estate investments to global exposure, diverse opportunities are available for both conservative and growth-oriented investors who wish to operate and benefit in the stock market here.
Following the Singapore Accounting and Corporate Regulatory Authority (ACRA), below are some common types of shares in Singapore:
- Ordinary Shares
- Preference Shares
- Redeemable Preference Shares
- Convertible Preference Shares
- Treasury Shares
We will dive into the details of these shares, including their characteristics, subjects, and several important comparisons between them in the latter sections, so keep reading.
What rights are attached to your company shares?
Shares of your Singapore company provide the shareholders with certain beneficial rights protected by law. By analyzing how these privileges impact your business, the business owner will be able to balance share values, manage the capital flow more efficiently, and ensure effective corporate governance at the same time.
Several key rights of your shareholders are as follows:
- Attend and vote at shareholders’ meetings
This includes annual general meetings (AGMs) where important matters such as the election of directors, approval of financial statements, and appointment of auditors are discussed and decided upon.
- Get access to financial information
Shareholders are entitled to receive timely and accurate financial information about your company (e.g. financial statements, auditor’s reports, and other relevant reports), governance practices, and other material events that may impact their investment.
- Receive their dividends
Dividends, a portion of the company’s profits, are distributed to shareholders as a return on their investment. Dividends in Singapore are usually declared and paid by the board of directors, following the company’s financial performance, dividend policy, and applicable legal regulations.
- Inspect company records
Holding shares allows them to legally inspect certain company records, such as the company’s register of members, directors, and officers, and minutes of shareholders’ meetings.
When shareholders express a desire to inspect the company’s records, respond in compliance with the laws, verify shareholders’ entitlement, prepare requested records, ensure confidentiality and data protection, and document the process properly to avoid potential penalties.
- Transfer shares
A shareholder can transfer shares in the company, subject to any restrictions or limitations set out in the company’s constitution or shareholder agreements. As a result, this might create changes in the balance of power among shareholders, or even the composition of the board of directors, which can impact the overall governance and strategic direction of the company.
Go through the share transferring process of the private limited company, one of the most popular types of businesses in Singapore for more reference.
In several cases, noticeably when a shareholder transfers shares to a competitor or an outsider, it raises concerns among other shareholders about potential conflicts of interest, confidentiality breaches, or changes in the dynamics of shareholder relationships.
Be cautious when it comes to these processes of transferring shares.
- Bring legal actions
The laws allow shareholders to take legal actions on behalf of the company, known as derivative actions if the company’s directors or officers have acted in breach of their duties or engaged in wrongful conduct that has caused harm to the company.
Shareholders will protect their interests and seek remedies for any damage if the company is mismanaged, so work with legal advisors to avoid unwanted consequences.
- Participate in the distribution of surplus assets
If the company is wound up or in the event of liquidation, shareholders may have the right to participate in the distribution of any surplus assets, under the Companies Act in Singapore, after the company’s debts and liabilities have been settled. The surplus assets may include cash, property, or other assets that remain after the company’s obligations have been satisfied.
Ordinary shares, also known as common shares or equity shares, represent ownership in a corporation and typically carry voting rights, giving shareholders the ability to participate in corporate decision-making, but not the rights to receive or demand dividends.
There can be different rights associated with different classes of ordinary shares (such as “class A shares” and “class B shares”) that a company may issue.
Ordinary shareholders may receive fewer dividends compared to preference shareholders. However, the liability of ordinary shareholders is limited, which means that their personal assets are not at risk if the corporation encounters financial difficulties or becomes insolvent.
If your company is seeking to raise capital for development or business growth, by selling ownership stakes to investors, start issuing ordinary shares. They will act as a tool for companies to access potential financial sources, and align interests with shareholders to support expansion plans.
Preference shares give the owners priority over ordinary shareholders. This means that between preference shares vs. ordinary shares, in the event of profit distribution or liquidation, the owners of preference shares will receive their dividends or assets before the owners of ordinary shares.
A preference share usually does not have voting rights, although extended voting rights may be included depending on the agreement. In this way, the company can retain more control over its business.
Generally, preference shares are issued if your business seeks to attract funding from conservative investors looking for a steady, less risky source of income and priority over other shareholders when it comes to dividend payouts and asset distributions.
Redeemable Preference Shares
Redeemable preference shares are shares that can be bought back by the company at a fixed price at a future date. These shares may be redeemed at a specified date or the discretion of the directors at an agreed value, although the company must be a going concern (being capable of meeting its obligations and continuing business for the foreseeable future) to qualify.
A Corporation is looking to raise capital to fund the development of a new product. Instead of taking out a loan from a bank or issuing ordinary shares, they decide to issue redeemable preference shares to investors.
The shares have a fixed dividend rate of 5% per annum and are redeemable by the company after 5 years from the date of issuance.
Investor X, a venture capitalist, decides to purchase 1,000 shares at $10 per share, for a total investment of $10,000. As per the terms of the redeemable preference shares, Investor X receives annual dividends of 5% on his investment, which amounts to $500 per year.
After 5 years, A Corporation decides to redeem the shares and buys them back from Investor X for $10 per share, totaling $10,000, plus any accrued but unpaid dividends.
It provides flexibility in terms of dividend payments and a predetermined redemption timeline, allowing the company to manage its respective financial interests without taking on any debt.
When the business decides to pay redemptions to the shareholders, an issue of fresh shares can be used in this case. Under the “Notice of Redemption of Redeemable Preference Shares” eService offered by BizFile+, directors must file a solvency statement with ACRA.
How will a Singapore company redeem its redeemable preference shares?
A private company may redeem any redeemable preference shares by submitting a prescribed notice of redemption with the Registrar.
On the other hand, if a public company redeems any redeemable preference shares, it must give notice thereof to the Registrar specifying the shares redeemed within 14 days after that.
Convertible Preference Shares
Convertible preference shares can be converted into another type of security, such as ordinary shares or preference shares, at a predetermined ratio. They usually carry rights to a fixed dividend for a particular term. The company can choose to convert them or leave them as they are when the term ends.
Note that the conversion prices must be specified in the company’s constitution. If the price of an ordinary share rises, the conversion prices will not and cannot be adjusted. It essentially allows the shareholder to purchase ordinary shares at a lower price.
If your business aims to attract investors looking for a fixed dividend rate and the option to convert their shares into ordinary shares at a later date, this is the most suitable type of share.
B Corporation is a biotech company that is looking to raise capital for the research and development of breakthrough medicine. To attract investment, they decide to issue convertible preference shares.
Investor Y, a strategic partner, decides to purchase 1,000 shares at $10 per share, for a total investment of $10,000. The convertible preference shares have a conversion ratio of 1:1, which means that each of them can be converted into one ordinary share of B Corporation.
After a few years, B Corporation successfully completes the clinical trials for its discovery and receives regulatory approval. The value of the company’s ordinary shares increases significantly, and Investor Y decides to convert their convertible preference shares into ordinary shares at the predetermined conversion ratio.
As a result, Investor Y now holds 1,000 ordinary shares of B Corporation, which have greater value and potential for capital appreciation than the $10 convertible preference shares before.
Company treasury shares are shares purchased back from shareholders and kept on hand by the company. These shares do not have the right to attend or vote at meetings and do not receive dividends, but they can be sold back to the public in the future or used to compensate employees.
A company can hold no more than 10% of its ordinary shares in treasury shares. Excess treasury shares must be canceled or disposed of within 6 months (i.e. more than 10% of all ordinary shares).
In necessary cases, the company has the option to sell, cancel, or transfer the treasury shares under the “Notice of Cancellation or Disposal of Treasury Shares under S76K”.
Why do companies purchase back their shares at times?
Buying back your company’s share is not a rare sight. In fact, several reasons could lead to a company repurchasing its own shares, including reducing the number of outstanding shares, increasing earnings per share, or having stock options available for future employees.
Investors and companies can raise capital more effectively if they can understand the key differences between these types of shares extensively.
Please find below a comprehensive comparison table summarizing the key information on different types of shares in Singapore:
|Type of Share||Definition||Voting Rights||Dividend Priority||Redemption Option||Conversion Option|
|Ordinary Shares||Represents ownership in a company||Yes||Lowest||No||No|
|Preference Shares||Shares with preferential rights||Maybe||Higher||No||No|
|Redeemable Preference Shares||Can be redeemed by the issuer||Maybe||Varies but higher than ordinary||Yes||No|
|Convertible Preference Shares||Can be converted into other instruments with a fixed dividend rate||Maybe||Varies but higher than ordinary||No||Yes|
|Treasury Shares||Shares repurchased and held by the company||No||None||Yes||No|
The features and characteristics of shares may vary depending on the specific terms and conditions set by the issuing company.
Make sure to carefully review the company’s disclosures, and legal documents, and seek professional advice before making any investment decisions related to shares in Singapore.
Ultimately, the choice of the type of shares to issue depends on the goals, needs, and preferences of the company and its investors.
Companies may issue different classes of shares with different rights and restrictions to attract investors and achieve their strategic objectives. Investors should carefully consider the risks and benefits of each type of share before making an investment decision.
Conveniently, we do offer a comprehensive Singapore corporate secretary service that can efficiently manage shares-related issues and provide tailored solutions based on your company’s unique needs. Don’t hesitate to reach out to our team for further information on our service via the chatbox or drop a message at email@example.com for timely support.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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