Typical Share Structures used in Singapore

Most Singapore companies are incorporated with just one class of ordinary shares, with equal rights to voting, dividends, and return of capital on liquidation/winding up.
 
Having understood the purpose of the different types of shares in our earlier blog post, you can adopt an appropriate share structure for your Company featuring a combination of different types of shares to achieve positive impact on your Company in terms of decision-making, financial position and company management.
 

Different Types of Share Structures

Other than the usual single share structure, here are some other typical share structures adopted in Singapore.
 
Ordinary-Preference Shares Share Structure
 
This is a combination of ordinary and preference shares, where preference shareholders enjoy priorities over dividends and/or return of capital on winding up. Under this share structure, ordinary shareholders usually enjoy voting rights and preference shareholders do not have voting rights, except in certain situations depending on the terms of the preference shares.
 
Alphabet Share Structure
 
This is where different classes of shares are denoted with different alphabets such as “Class A”, “Class B”, “Class C” etc. Generally, all ordinary shares are ranked equally. You can use this share structure to differentiate the rights of each class of ordinary shareholders in terms of dividends distribution. Such share structure is usually applied to ordinary or preference shares.
 
Dual Class Share Structure
 
This share structure is where certain shareholders have voting rights which are not proportionate to their shareholding. For instance, one group of shareholders are entitled to one vote per share, while another group holds multiple votes per share. This type of share structure divides the profit-sharing rights from the voting rights, providing the management and founders with more voting power as compared to ordinary shareholders.
 

Deciding on the Optimal Share Structure

No matter what type of share structure your Company adopts, you will note that it comes down to a few decisions you need to make regarding shareholder rights and responsibilities:

1. Rights to vote
2. Rights to Profit Sharing
3. Rights upon Liquidation/winding up

Different types of shares serve different purposes, and they can have different rights with respect to voting and dividend entitlements. Each of them has its unique strengths and weaknesses as investments, and appeal to different shareholders. Shareholders who are more profit-driven may find preference shares with priorities over dividends and surplus assets attractive, while others may value having the voting rights conferred by ordinary shares more important. 

Last but not least…

Once you have considered the features of each share type or share class, and come to a decision on the share structure deemed best for your Company, make sure this is properly documented in either your Company’s Constitution or a shareholders’ agreement. This is to ensure the rights and obligations of each class of shareholders are clearly meted out to prevent any misunderstanding or unhappiness.
 
Shares can also be influenced by the existence of other share classes, as in the case of a preference share having a priority over ordinary shares. If you wish to vary the rights of shareholders or issue shares which may potentially dilute the interests of minority shareholders, it is important to note that minority shareholders can take actions against your Company if their interests are or may be affected if your Company contravenes any provision in your Company’s Constitution, shareholders’ agreement or the Companies Act. Thus, ensuring that all shareholders of your Company are on the same page is of utmost importance.