Shares = Control and Ownership in Company

A private company limited by shares is the most common type of entity incorporated in Singapore. It has directors who manages the company and shareholders who own the company. The shares held in a company by an individual or corporation represent that person’s or corporate’s stake of ownership in the business.

As one increases shareholding proportion in a company, it also means that the ownership and control of that shareholder increases as well. Certain shareholders might be in a passive mode where they view shares as a means of “growing” their money. There are others who may value the ability to be involved in the decisions surrounding the company by exercising their votes at general meetings.

Hence, issuance of shares in your Company has a consequence as to whom you wish to have control over your Company, how you want the control to be exercised and the manner dividends will be distributed.

A point to note - While shareholders own the company, shareholder’s liability for the company’s debts is limited merely to the capital that they have invested in the company i.e. the value of the shares. This means that if your Company becomes insolvent and incurs losses exceeding the issued share capital of your Company, the shareholders are only liable to pay based on their stake of ownership in your Company. The shareholders’ personal assets are still protected.
 
For the next few blogs, we are going to share with you on what you need to know about shareholder rights and responsibilities, types of shares and shareholding structures. But first, let’s start with the basic concepts.

Share Capital Requirements

1. The minimum issued capital must be at least S$1.

Issued share capital refers to the total amount of shares issued by the company. They may or may not be fully paid-up yet.

2. There is no minimum paid-up share capital required.

Paid-up share capital refers to the amount paid by the shareholders on the shares that have been issued by the company. On the contrary, unpaid share capital that are yet to be submitted by the company’s shareholders.

Shareholder Requirements

The following requirements applies only to a private company limited by shares in Singapore.

1. There must be at least one shareholder at all times.
2. The number of shareholders cannot exceed 50.
3. Shareholders can be individuals (regardless of nationalities) or corporate entities (regardless of local or overseas).

Why Issue More Shares?

Here are the top 10 reasons for issuing more shares in a company:

1. To raise start-up capital to finance operations before revenue generation kicks in.
2. To issue sweat equity shares at no or low cost for significant contribution or connections.
3. To do equity financing and raise capital to finance expansion.
4. To repay some or all of the debts or borrowings and reduce interest costs.
5. To improve borrowing ability and facilitate future borrowings as issuance of shares can lower debts which leads to better overall financial stability.
6. To fund a project or development which requires significant initial capital.
7. To prepare for merger or acquisition through share swap.
8. To issue shares pursuant to scrip dividend scheme instead of distributing cash dividend.
9. To issue shares pursuant to employee share option scheme and share award scheme.
10. To improve value of company or fulfil certain shareholding requirements in the course of business such as applying for listing on a stock exchange.

Key Takeaway

There are four main parties to manage when issuing shares:

• Founders – To retain control and ensure that there is sufficient capital for business operations and/or expansion
• Investors – To ensure that obligations to them are met and that there is alignment with their interests
• Independent Directors – To appropriately remunerate them based on their level of contribution to help your Company meet its objectives
• Employees – To link share rewards to corporate and individual performance with a view to attract, retain and motivate them

How you allocate shares of your Company to the aforesaid parties is critical. It will have an impact on your Company in terms of decision-making, financial position and company management. Hence, the manner of share issuance should be fair, reasonable and equitable.