Shareholder Roles and Obligations in Singapore Companies
You are a shareholder of a company if you own shares in that company. Being a shareholder confers upon you a number of rights, but also brings with it responsibilities. This article will explain some of your roles and obligations as a shareholder of a Singapore company.
Paying for Shares
Your primary duty as a shareholder is to pay the company the entirety of the sum agreed in exchange for the shares that are allotted to you. The exact terms and methods of payment may differ depending on the type of shares you have bought.
For example, in the case of shares bought via a securities brokerage firm, you must make payment on terms as defined in the agreement between yourself and your securities brokerage firm.
For shares in non-listed companies, relevant payment terms should be contained in the shareholder agreement.
Approving the Declaration of Dividends
If the board has recommended the declaration of dividends, it is the responsibility of shareholders at the Annual General Meeting (AGM) to approve or decline to approve such a recommendation.
Appointing and Removing of Directors
Appointment of directors
Unless the company’s constitution provides otherwise, shareholders are generally responsible for appointing directors by exercising their voting powers at a general meeting. As directors are responsible for most of the day-to-day management of the company, it is important that you vote for competent and qualified directors.
Removal of directors
Shareholders are also responsible for the removal of directors who are under-performing or who have engaged in misconduct. Shareholders usually have the exclusive right to vote to remove a director – directors cannot be removed by the board.
Where director appointment or removal concerns a public company vs private company
In the case of a public company (with no restrictions on share transfers and more than 50 shareholders), the Companies Act (CA) makes clear that no provision in any company’s constitution or in any director’s service contract can purport to modify or derogate from the above-mentioned two rules. Any such provisions, if present, will be unenforceable.
In the case of private companies, the responsibility of removing an under-performing or errant director might not vest on shareholders as the right of shareholders to remove a director can be qualified, modified or removed by the company’s constitution.
Carefully Considering Voting Decisions
Voting on resolutions pertaining to the company’s general business
Generally, the right to vote brings with it the obligation of deciding whether you should vote for or against any proposed resolution tabled at meetings. You are obliged to cast your vote(s) in accordance with your views on how the company can be run most effectively and profitably.
Voting on resolutions pertaining to amendments to the company’s constitution
In particular, you should consider your vote carefully where resolutions pertain to amendments to the company’s constitution. This is because often, highly important provisions such as directors’ remuneration, the company’s objects, or any limitations to directors’ powers are contained within the constitution.
Any amendments to these important provisions might therefore affect your rights as a shareholder significantly.
Note: Resolutions to amend the company’s constitution must be passed with at least 75% votes.
Voting on resolutions where the company is issuing new shares
Shareholders must approve any issuance of new shares by a company. Thus, you have the obligation to consider the company’s rationale for doing so, and whether voting in favour of this will be in your interests.
For example, you should note that the issuance of new shares only to one subscriber (E.g. to only one new investor in exchange for company funds) could lead to a dilution in shareholding, which might be detrimental to yourself and most importantly, to all the minority shareholders of the company who may see a decrease in shareholder value as well.
To illustrate, if Company X currently has 10 million issued shares, of which you own 100,000 shares (equivalent to 1% shareholding), but decides to issue 1 million new shares to an individual investor, the total number of issued shares will become 11 million. As a result, your shareholding will be reduced to 0.9% from the original 1%, leading to a dilution in shareholding ownership.
It is therefore important that consider your votes carefully when approving any share issuance in order to prevent share dilution.
Voting on proposed sales of the company’s assets
Shareholders are responsible for voting for or against any proposed sale of the company’s assets where these assets are of significant value.
For listed companies, shareholder approval is required for any sale of assets:
- Worth over 20% of the company’s net asset value;
- Responsible for over 20% of the company’s profits; or
- Fetching over 20% of the company’s market capitalisation
For non-listed companies, shareholder approval is only required by law if the company is disposing all or almost all of the company’s assets or business. However, the company’s constitution may also provide for the need for shareholder approval in asset sales beyond a certain value.
In particular, shareholders must be vigilant in considering whether to vote in favour of the sale if the company proposes to sell a particularly strategic asset (e.g. the company’s main factory), as such sale might have a direct impact on the company’s net asset value, profits, etc.
Attending General Meetings and Raising Areas of Concern
A shareholder who has any queries or concerns regarding the legal or commercial effects of voting for or against a particular resolution is responsible for attending the meeting and posing such queries or concerns to the company at the meeting. This is in accordance with the purpose of general meetings being a forum for shareholders to debate (before, or in addition to voting on) matters which affect the company.
For instance, if a share issue is being proposed by the company, and you are of the opinion that the company has not provided sufficient information on the proposal, you are responsible for seeking clarifications regarding the commercial justifications for that share issue.
You might wish to enquire further as to whether, and how, the proposed share issue will lead to increased shareholder value. Conversely, if the company did not articulate convincing justifications for the share issue, it is your responsibility to ask questions and raise your concerns to arrive at a more informed voting decision.
Meetings are also an opportunity for shareholders to ask questions on the company’s business or its financial health. For example, at AGMs – where the company’s financial statements are presented to shareholders – shareholders are responsible for querying the management about the financial results contained in these statements if there are any areas of concern or dissatisfaction.
By raising such concerns, you ensure that the exercise of your vote is an informed one. This ties back to your obligation to vote (for or against a resolution) in the best interests of the company (as mentioned above).
It could be the role of the shareholders to pursue legal action on behalf of the company, known as a derivative action, where the company has suffered a wrong but the company does not wish to prosecute that wrongdoing.
To illustrate, when a director makes improper use of his position as the company’s director to cause detriment to the company (e.g. by accepting personal financial incentives to cause the company to enter into a disadvantageous transaction, resulting in a loss to the company), the company would usually have to pass a resolution to commence legal action against the errant director.
However, where the said director happens to be also a majority shareholder of the company, the company is unlikely to proceed with any action against this director given that said director controls the outcome on any voting on any such resolution.
Thus, in such a case, the responsibility could then fall on shareholders to pursue such legal action against the errant director via the derivative action provisions provided in the CA. For more information, read our other article on bringing a statutory derivative action under the Companies Act.
Providing Up-to-Date Particulars
It is your responsibility to update the company in the event of any change in your particulars. This is to ensure that you receive important documents like annual reports, newsletters, and notices of meetings in a timely fashion.
Reading and Responding to Communications from the Company
You are responsible for reading and, if necessary, responding to communications from the company in a timely fashion. If you do not do so, you might risk suffering some detriment.
For example, where a resolution had been passed at the most recent AGM giving directors a general mandate to issue new shares in the intervening period between this AGM and the next, you might be informed within this intervening period, that the company is raising funds by issuing new shares to existing shareholders, known as a “rights offer”.
In such a case, instructions as to how you can accept the offer will usually be included. If you do not respond to such a notice in time, and it is thus presumed that you will not be subscribing to the new shares issued, you might find your existing shareholding in the company diluted should other shareholders take up the offer.
Additionally, an Extraordinary General Meeting (EGM) may be called in special circumstances, such as when the company is subject to a takeover offer, or when the company wishes to issue new shares not covered by an appropriate general mandate.
If you do not read and respond accordingly to such communications, you could miss out on the opportunity to vote on important resolutions.
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