How to Issue Shares in a Singapore Private Company
Issuing shares in your company is a great way to obtain investment capital and grow your business. If you want to encourage your employees to work harder and give them a stake in your company, you can also reward them with shares.
Considerations when Issuing Shares
There are many different considerations to take into account when deciding to issue new shares.
1. Different classes of shares
First, there are different classes of shares such as ordinary shares, alphabet shares, management shares and even preference shares.
(a) Ordinary shares
Holders of ordinary shares have equal voting and dividend rights in proportion to their shareholding. However, ordinary shares can be divided into alphabet shares which may have different rights (e.g. Class A or Class B ordinary shares).
(b) Shares with different rights
Examples of shares with different rights include shares that have preferential dividend rights, the lack of or higher voting rights, rights of redemption (e.g. to sell back their shares to the company) or management rights (e.g. the right to appoint a board member).
You would have to consider exactly which type of shares your company would like to issue.
2. Shareholder approval
Hence, the board must obtain either:
- A specific mandate for that particular issuance of shares; or
- A general mandate by the general meeting authorising the Board of Directors to issue shares.
You may need to hold an Extraordinary General Meeting to seek shareholder approval before issuing the shares.
If your company’s constitution stipulates any specific procedures that is required before the company may issue shares, then those procedures will have to be followed.
How Do You Issue New Shares?
An issuance of shares is known as an allotment of shares. In an allotment, the subscribers to a company’s constitution agree to take up shares of the company.
The following documents are usually prepared by the company secretary:
- A Director’s Resolution in Writing (DRIW) recording the allotment of shares;
- Lodgment with Accounting and Corporate Regulatory Authority (ACRA) a “return of allotment” within 14 days; and
- Preparation of new Share Certificate(s).
The “return of allotment” form should contain the following information:
- Number of shares in the allotment;
- Amount (if any) paid or deemed to be paid and the amount unpaid on the allotment of each share;
- Where there are different classes of shares, the specific class of shares to which each share in the allotment belongs; and
- Full name, identification, nationality and address of, and number and class of shares held by each of the company’s members. Or if the company has more than 50 members, then such particulars of each of the 50 members who hold the most number of shares in the company after the allotment (excluding treasury shares).
The company must have the share certificate ready to be issued to the new shareholders within 2 months after the allotment of shares.
After the share certificates have been issued to the new shareholders, the company secretary has to update the company’s register of shareholders.
Do You Need a Prospectus?
According to section 240 of the Securities and Futures Act (SFA), any offer of securities (e.g. shares, derivative products, bonds) must be accompanied by a prospectus (a comprehensive document issued to investors).
However, creating a prospectus is often expensive and takes a lot of time. In order to avoid the need to issue a prospectus , a private company may utilise the private placement exception under section 272B of the SFA if it abides by the conditions stipulated.
These conditions include making the offer of investment to no more than 50 persons within any period of 12 months and not making advertisements or promotional expenses.
When issuing shares with different rights, a company should try its best to ensure that all rights and obligations are clearly spelt out in the company constitution or a shareholder agreement. This will prevent legal disputes that may possibly arise in the future.
Nevertheless, should you require any legal assistance, please feel free to consult our corporate and commercial lawyers.
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