Issuing company shares to investors is the primary way for companies to grow. Startups will often raise multiple rounds of equity funding from venture capitalists. Traditional SMEs often raise capital from private investors to expand their business. Providing a share option plan to your employees is also a great way to encourage an “owner’s” mindset by aligning incentives throughout the company.
The 3 steps to issue shares for your Singapore company are:
- Deciding on the type of share to issue
- Passing an Ordinary Resolution
- Filing a Return of Allotment with ACRA
We’ll also discuss:
- What is the maximum number of shareholders I can have?
- Do I need to prepare a prospectus?
- What are the legal risks when issuing shares?
Step 1. Decide on the type of share to issue:
There are multiple types of shares that you can issue in Singapore. These different classes of shares provide different rights and privileges to their owners.
Usually, most companies will only issue i) ordinary shares, and ii) preference shares.
Here are the various share classes you can have in Singapore:
When you incorporate the company, you must issue at least one ordinary share. Usually, one ordinary share equals one vote. Ordinary shares give their owner the power to vote at general shareholder meetings, the right to claim dividends, and the right to claim assets when the company is voluntarily wound up.
Founders and management typically hold ordinary shares, and/or super-voting shares (discussed below).
Preference shares are usually issued to Venture Capital investors, or other institutional investors. They provide special rights over ordinary shareholders when it comes to dividend payments. Companies with preference shareholders will pay dividends first to preference shareholders, with the remaining dividends going to ordinary shareholders. Also, preference shareholders will have a higher priority in claiming company assets if the firm is voluntarily wound up. Preference shares may also come with a “liquidation preference”, which can provide preferred shareholders with additional payments in the event the company is sold.
Typically, preference shares do not give their owner any ability to vote at shareholder meetings.
Super-voting shares are often given to the founders. For instance, one super-voting share could provide 5x, 10x or 20x the number of votes of ordinary shares. The amount of additional votes is up to the company to decide. Super-voting shares ensure founders remain in firm control of their companies.
Non-voting shares are similar to ordinary shares, except they don’t provide voting power. Non-voting shares give their owner to right to claim dividends, and the right to claim assets when the company is voluntarily wound up. However, they do not give the shareholder any ability to vote at shareholder meetings. Usually, non-voting shares are issued to employees, or to the family members of large shareholders.
You can create different classes of shares (e.g. Class A, Class B, Class C) with each offering varying levels of privileges.
These are shares that come with a “buy back option” by the company. The company will either have the obligation (must buy) or option (may buy) to purchase the shares at a future date. This can be useful for shareholders who want to have liquidity in their private shares.
No dividend is paid to deferred shares until a minimum dividend has been paid to all other shareholders. classes of shares such as ordinary shares, alphabet shares, management shares and even preference shares.
Step 2. Pass an ordinary resolution:
Usually, the Board of Directors will be the one proposing to issue new shares. Issuing shares is also known as an “allotment of shares”. In order for you to go ahead with the share issue, you must pass an Ordinary Resolution. This is the law under Section 161 of the Companies Act.
An Ordinary Resolution is basically a shareholder vote.
Here are the steps to pass an Ordinary Resolution:
- Prepare a written resolution (this is usually done by the Board of Directors) proposing to issue new company shares
- Set up a date for a shareholder’s meeting. The date must be at least 14 days in advance. If at least 95% of shareholders agree, the meeting can be held earlier.
- Hold the vote. The resolution to issue new shares must receive at least 50% of votes to pass.
- If sufficient votes are received, the Ordinary Resolution is passed. You can now issue the shares.
Don’t forget to send share certificates to your shareholders, after the new shares are issued. The company must send share certificates to the new shareholders within 60 days of the share issuance.
After you have passed the Ordinary Resolution, give yourself a congratulatory pat on the back. Proceed to step 3 and you’ll be all done.
Step 3: File a Return of Allotment
Once the shares have been issued, you’ll have to file a “Return of Allotment” with ACRA. This is basically updating ACRA with the latest information on how many shares were issued, who they were issued to, etc. You have to file the Return of Allotment with ACRA within 14 days of issuing the shares.
The Return of Allotment must state the following:
- Number of the shares issued in the allotment
- Amount paid for each share
- Amount unpaid on each share (if applicable – e.g. employees typically don’t pay for stock awards)
- Type of shares issued (e.g. ordinary shares, preference shares, etc.)
- Name, NRIC/FIN/Passport number, nationality, and home address of each shareholder (for shareholders who are individuals)
- Company name or UEN, and business address of each shareholder (for shareholders who are companies)
- The number and class of shares owned by each shareholder
You can do this easily via BizFile+. Go to BizFile+ (log in using SingPass) > Return of Allotment of Shares > Change in particulars of shareholders.
Do you need a prospectus?
Most private companies will not require a prospectus. Section 272B of the Securities and Futures Act (SFA) allows companies to skip the step of preparing a prospectus, if certain conditions are met.
You don’t need to have a prospectus when issuing shares if you meet the conditions below:
- You are making the share issue offer to 50 people or fewer within a 12-month period
- You are not making public advertisements for this share issue offer
If you don’t meet the criteria above, then you’ll have to prepare a prospectus. This is governed under Section 240 of the Securities and Futures Act (SFA). A prospectus will cost a fair amount of time and money to prepare and takes a lot of time.
What is the maximum number of shareholders I can have?
For Private Limited companies:
For Private Limited entities, you can have a maximum of 50 shareholders. If you currently run a Private Limited company but want to have more than 50 shareholders, you will need to convert your company from a Private Limited into a Public Limited.
For Public Limited Companies:
For Public Limited entities, there is no limit to the number of shareholders.
Shareholders for both Private and Public Limited entities can either be private individuals or corporate entities. Shareholders can be 100% foreign.
What are the legal risks when issuing shares?
Share issuances can result in lawsuits against the company. For instance, shareholders can sue directors and officers of the company for approving new share issuances, which may prejudice the rights of existing shareholders. Minority shareholders can also sue for minority oppression, e.g. claiming that the issuance unfairly dilutes their shares. Such lawsuits are common.
- Two sons of late President Ong Teng Cheong in lawsuit over share transfer/minority oppression dispute
- Facebook sued over plan to issue new Class C shares
- Google settles lawsuit over share issuance plan
You should strongly consider Directors and Officers Liability Insurance to protect you from lawsuits related to share issuances, amongst other risks.
This type of insurance protects company directors and officers from many types of lawsuits, such as:
- Minority oppression and other shareholder lawsuits
- Unfair dismissal lawsuits
- Employee harassment lawsuits
- Negligence lawsuits
- Defamation lawsuits
- …and more
Directors and Officers Liability Insurance pays for your lawyer’s fees (which can be hundreds of thousands), plus court damages/settlements. Having a Directors & Officers Liability policy could save you huge sums of money – millions, even.