The shares of a company represent ownership in a company. When a company is incorporated, the shareholders are the ones who own the company. The shareholders must also determine who owns how many shares. There are also different classes of shares with different rights. Shareholders are the ones who invest in the company and in exchange, the company will allot shares to the shareholder. Thus essentially shares are the rights and obligations that are given to the shareholder in exchange for his or her investment in the company. The shareholders are entitled to participate in the company’s constitutional documents as a separate legal entity so long as the company is a going concern. Each shareholder should be issued a share certificate to reflect his interest in the company.
The rights of a shareholder:
1) The right to attend general meetings and to vote on matters
The shareholder would usually carry a right to vote on matters tabled at general meetings. However, there may be classes of shares with varying voting rights. Some shares may not carry voting rights, some may carry additional voting rights and some may carry rights to vote in restricted situations.
2) The right to a share in the company’s profits
The shareholder is entitled to dividends which are paid out from a company’s profits. These dividends are usually paid out in proportion to the shares held by each shareholder. Based on the company’s constitution, dividends may be varied and paid out differently to different classes of shareholders.
3) The right to final distribution on winding up
The shareholder is entitled to any remaining assets after liabilities in the event a company is wound up. The remaining assets are usually paid out in proportion to the shares held by each shareholder. However, just like the right to profits, based on the company’s constitution, the remaining assets may be varied and paid out differently to different classes of shareholders.
The different classes of shares:
1) Ordinary shares
These are the most common form of shares and for most companies, ordinary shares constitute all shares in the company and each share represents an equal voting right.
2) Non-voting shares
These shares do not give the shareholders the right to attend general meetings or to vote on matters at these meetings. Usually, preference shares do not come with voting rights. In most cases, preference shareholders give up their rights to attend general meetings and to vote in exchange for rights over ordinary shares when it comes to profits.
3) Preference shares
These are usually non-voting shares although voting rights can still be attached to them. These shares have preferential rights over ordinary shares when it comes to the distribution of profits and the final distribution on winding up.
4) Redeemable shares
These shares are issued and can be bought back by the company at a fixed date or at the option of the company. These shares give the shareholders a right to repayment of their capital.
5) Management shares
These shares usually represent extra voting rights and are usually allotted to the founders of the company to allow them to retain control of the company and its original vision and direction.
6) Other classes of shares
Companies are free to come up with different classes of shares and spell out their rights in the company’s constitution. For example, a company may go through series A, series B and series C stages of funding and the rights are usually varied to favour the earlier investors over the later ones.
In Singapore, company owners are free to structure their share structure to best suit the company. For any variation in share classes and their rights, it must be spelt out clearly in the company’s constitution.
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
The editorial team at Acra Filing Agent
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