Founders, entrepreneurs, and investors must deal with a fair distribution of equity after company incorporation or investing in a specific venture; in the contemporary capitalist system, this distribution is accomplished through the issuance of shares. If you own shares in a Singapore firm, you have a stake in the company that issues the shares, and you stand to gain from their earnings as well as lose out on their losses.
However, not all shares of a firm are created equal; some may come with varying rights and perks. For example, some shares may provide you with control over company decisions, whereas others may provide you with a disproportionately large profit share without providing you with any control over company decisions.
To understand the types of shares a company can have and how they can be distributed, it is important to have a clear understanding of the different types of shares.
All shareholders are not always regarded as equals in a capitalist economy. Some might be the original entrepreneurs who started the company from scratch. Some might be late-stage investors (who assumed less risk because the company was on a stable footing by that time), while others might be early-stage investors (who assumed more risk while the company was just getting started).
Some investors might wait until a difficult period for the business to invest, taking a bigger risk themselves. Some shareholders could be desirable to the firm because they might offer advantages like counsel, contacts in the corporate world, technical expertise, supplier networks, etc. As such, after company incorporation in Singapore, the best way to go forward is to issue different share classes.
The most common type of share is an ordinary share. Typically, they come with voting rights but do not grant shareholders the ability to receive or request dividends.
In comparison to shareholders who own preference shares, ordinary shareholders also receive lower dividend payments. Companies may categorize their common shares into several classes (such as “A” and “B”), each with unique privileges.
In comparison to ordinary shares, preference shares grant the holder some preferential rights. The right to fixed dividends, priority over regular shares for dividends, and a return of capital in the event of a firm’s collapse are some examples of preferential rights.
These shares enable stockholders to receive their initial share capital back. These shares may be redeemed by the firm at an agreed-upon price on a specific date or at the directors’ discretion. This is predicated on the business continuing to operate.
Redeemable shares can be paid for out of the company’s capital using the money raised from a new share issuance. Per the “Notice of Redemption of Redeemable Preference Shares” eService via BizFile+, the directors are required to submit a solvency declaration to ACRA.
Typically, convertible preference shares include rights to a predetermined dividend for a specific period. The corporation has the option to convert the bonds into ordinary shares at the end of the period or to keep them in their current form. The company’s constitution must include conversion rates. The conversion prices will not increase along with an increase in the price of an ordinary share. In essence, it enables the shareholder to purchase common shares for less. The relevant BizFile+ transaction is “Conversion of Shares.”
These are ordinary shares that the company acquires from shareholders. Despite being designated as the owner of the treasury shares, the company is not permitted to exercise its right to attend meetings or cast a vote in them, and no dividends may be given to the firm. .
10% of all issued ordinary shares are restricted from being kept by the corporation as treasury shares. More than 10% of the total number of ordinary shares in treasury shares must be cancelled or sold within six months.
Treasury shares may be sold, canceled, or transferred by the corporation using Bizfile+’s “Notice of Cancellation or Disposition of Treasury Shares under S76K” eService.
Multiple share classes are more common for public companies, but this doesn’t mean that a private company cannot do so as well. Typically, this is done to satisfy the interests of diverse stakeholders and draw in new investors. To accomplish this flexibility, certain clauses in the company constitution can be introduced at the time of incorporation. As an alternative, a suitable shareholder resolution may be adopted at a later time (i.e., only when the necessity arises) to alter the constitution.
Corporate service providers, like PikoHANA, are knowledgeable not only in the company incorporation process but can also help with shares. Whether you are based in Singapore or not, PikoHANA offers a comprehensive concierge service that can help with all aspects of company incorporation, including the appointment of a nominee director or secretary, providing a Singapore-based address, and other documents needed when incorporating a business in Singapore.
If you need help with company incorporation in Singapore and guidance on the best shares for your company, reach out to us today.
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