Guide on Share Allocation in Singapore
Many start-up owners are often unaware of the implications of their share allotment and sometimes even unclear about how shares work. This article will spell out all the key information you would need to effectively allocate your shares with minimal charges incurred subsequently.
The Singapore academy of Law defines a share as “interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders between themselves in accordance with section 39(1) of the Act.”
What are the different types of shares?
Usually, startups will tend to go for either ordinary or preference shares, as these are the simpler classifications of shares.
1. Ordinary Shares
Primarily, most start-ups go with ordinary shares. The characteristics of ordinary shares are as follows
- 1 vote per share
- Equal participation in dividend payouts
- Share in surplus capital in case of winding up
2. Preference Shares
Preference shares, as the name states, have preferential rights over ordinary shares for dividends and return of capital on winding up. The characteristics to note for preference shares are as follows
- Non-voting
- Redeemable
3. Management shares
Management shares have extra voting rights. Usually they are assigned to key decision makers of the company to ensure they have sufficient control over the company.
All of this is considered when you are incorporating a company in Singapore.
What is Total Shares, Total Issued Shares, Treasury Shares and Paid-up Capital?
- Total shares refer to the total number of shares that can be issued by the Company, including treasury shares.
- Total issued shares are the number of shares that have been allocated to shareholders. This does not include treasury shares.
- Treasury shares are shares held by the company. As per the Companies Act, treasury shares cannot exceed more than 10% of the total number of shares of the company. For example, if the company has 10,000 shares, only 1,000 can be held as treasury shares.
- Paid-up capital is the amount paid for these shares.
Typical example of how a simple company will do their shareholding structure with 2 equal shareholders (you are free to decide on the absolute numbers)
Total shares: 100 ordinary shares
Paid-up capital: $100
How to split:
- Shareholder A - 50 shares, $50 paid up capital
- Shareholder B - 50 shares, $50 paid up capital.
Frequently Asked Questions
Does the amount I have declared as paid-up capital need to be deposited into my bank account?
Yes, on the grounds of good accounting principles. However, that amount does not need to remain in the bank for the long term as it can be reinvested for relevant corporate needs.
Can I alter my share capital whenever required?
Yes, however, this is subject to your own internal shareholder approval. Relevant changes can be filed with a corporate service provider’s assistance. However, the lead time for some of these changes like Share Capital Reduction can take up to 8 weeks.