Shareholding structure refers to the way in which shares are distributed among shareholders. There are used are used to protect and manage company assets, liabilities and ownership rights. They can be complex, but this article will serve as a guide for you to understand the basics of shareholding structure options in Singapore.
What are shares?
A share is simply a slice of a company that has been issued. In essence, shares represent ownership of the company and shareholders can vote and receive dividends.
In Singapore, companies issue different types of shares:
Companies issue different classes of shares to accommodate their growing number of stakeholders. There are no legal definitions for share classes, and shares with the same name can have different rights in different companies. Some typical classes of shares and their rights are described below:
1. Voting Rights: The Pillar of Control
Overview: Voting rights are the cornerstone of a shareholder’s influence in the decision-making processes of a company. Typically, ordinary shares carry one vote each at general meetings, providing a democratic representation of ownership.
Flexibility Through Ownership Classes: Companies, as exemplified in the Google case, have the flexibility to modify voting rights. This may involve the issuance of non-voting shares, shares with multiple votes (e.g., 10 votes per share), or shares with limited voting rights. Founders, in particular, should prioritize this right as it directly impacts their ability to steer the company’s direction.
2. Profit-Sharing Rights: Dividends and Diversity
Overview: Profit-sharing rights revolve around the distribution of a company’s profits in the form of dividends. The amount allocated per share is a crucial aspect of shareholder returns.
Ownership Class Influence: The company’s Articles of Association play a significant role in dividing shares into different classes, allowing for varied dividend allocations. Directors or shareholders may have the authority to distribute different amounts of dividends to distinct classes of shares. This flexibility accommodates diverse shareholder preferences and company strategies.
3. Liquidation/Winding-off Rights: Ensuring Fair Distribution
Overview: In the event of a company’s liquidation, shareholders look to the division of remaining assets after settling all debts. Generally, residual assets are distributed proportionally based on each shareholder’s interest in the company’s share capital.
Ownership Class Dynamics: When shares are divided into different classes, the company’s Articles can outline priority rights in the distribution of residual assets. This ensures a fair and structured process, offering certain classes of shares precedence in the division of remaining assets during liquidation.