Shareholder Rights in Singapore Private Companies

You are a shareholder if you own shares in publicly-listed companies (acquired through the stock exchange) or shares in a private company (e.g. when your friend starts a small business and you invest in it, in exchange for part-ownership).

Being a shareholder confers a number of rights and responsibilities, and this article will explain what your rights are. In general, the rights of shareholders in Singapore private companies are:

• Right to expect dividends upon declaration of final dividend
• Right to observance of company constitution and Companies Act
• Access to meetings and information
• Pre-emption rights
• Right to bring legal proceedings against or on behalf of the company
• Rights in the event of winding up due to insolvency

For more information on your responsibilities as a shareholder, please read our other article.

Note: Some of the provisions discussed below may not apply in the event that you do not have your name entered into the company’s register of members despite being a shareholder. This may happen if, for instance, your shares are bought or owned through a nominee. The following discussion may also not apply to companies other than those limited by shares. If in doubt, please consult a lawyer.

Right to Expect Dividends only upon Declaration of Final Dividend

Shareholders have no automatic right to expect declaration of dividends, regardless of whether the company makes a profit. This also includes interim dividends, which are dividends declared by a company before its full-year financial statements have been issued.

Dividend declarations may be made based on promising quarterly or half-yearly results, but are revocable at any time before payment.

Courts will generally not intervene to compel declaration of dividends, save in exceptional circumstances where such non-declaration of dividends amounts to oppression. For instance, where a company’s director pays himself excessively high salaries or bonuses without declaring any dividends for shareholders.

However, shareholders have an irrevocable right to final dividend after it is declared. Final dividends are dividends declared by a company after its full-year financial statements have been issued.

Final dividends cannot be revoked, and shareholders will have a right to receive such dividends after the declaration, barring subsequent insolvency (see below).

Right to Observance of Company Constitution and the Companies Act

Right to demand adherence to company’s constitution

Every shareholder has the right to ensure that the company and all other shareholders adhere to all the provisions of the company’s constitution.

For instance, if the company states clearly in its constitution that its main business objectives is to sell clothing, but it later decides to venture into a different and unrelated business (e.g. going into an airline business), a shareholder will have the right to object to this new business venture.

Right to demand adherence to the Companies Act

Any shareholder whose interests are or may be affected by the company contravening any provision in the Companies Act may apply to court for an injunction to restrain such a contravention.

Access to meetings and information

Right to expect Annual General Meeting (AGM)

Shareholders of public companies have the right to expect at least one general meeting per year – the AGM. However, private companies may by resolution dispense with holding AGMs.

Right to call for or convene an Extraordinary General Meeting (EGM)

In addition to the AGM, 2 or more shareholders who collectively hold 10% or more of the company’s vote-carrying shares also have the right to requisition the company directors to convene an EGM, or to themselves convene such meetings.

Right to attend meetings

Shareholders have the right to attend all of the company’s general meetings, and to speak on any resolution tabled at the meeting.

Right of access to important information

Shareholders have the right to access and inspect:

• The electronic register of members (for private companies)
• The register of members kept by the company itself (for public companies)
• Minutes of general meetings (however, members usually do not have the right to access minutes of board meetings)
• The company’s register of charges, to find out which (if any) of the company’s assets are encumbered
• The registers of key management personnel, directors’ shareholdings, substantial shareholders, and debenture holders

Right to financial statements

Shareholders have the right to receive a copy of financial statements, balance sheets, and auditors’ report at least 14 days before the documents are to be presented at a general meeting.

In the case of a private company which has dispensed with the holding of an AGM, shareholders have the right to receive a copy of financial statements and related documents within 5 months after the end of the financial year.

Right to vote

Each share normally entitles the shareholder to one vote on any resolution, on any issue that has been tabled for a vote. This is unless the company’s constitution states otherwise, or if the type of share owned does not carry voting rights. Shareholders are free to vote in any way they see fit and purely in their self-interests.

Right to demand a poll if voting via a show of hands is not conclusive

Usually, voting on any resolution is done via a show of hands. However, where a show of hands is not conclusive as to the actual balance of votes, any shareholder may demand that a poll be taken, unless such a right is curtailed by the company’s constitution.

However, regardless of what the company’s constitution states, a demand for a poll cannot be denied if it is made by:

• 5 or more shareholders with voting rights;
• 1 or more members who hold 5% or more of the voting rights; or
• 1 or more members whose shares in total constitute 5% or more of the total sum paid on all shares conferring voting rights.

Pre-emption Rights

Pre-emption rights are rights giving existing shareholders priority in acquiring new shares issued by the company. The existence of such rights are not guaranteed, and depends on the individual company’s constitution.

Bringing of Legal Proceedings – Against or On Behalf of the Company

Right to bring legal action against the company

A shareholder has the right to apply to court to restrain the company from doing any act, or to seek any appropriate relief where the:

• Company’s affairs are conducted, or where the directors’ powers are exercised, in a manner oppressive to one or more shareholders; or
• Where the company has acted or threatens to act in a way that is unfairly discriminatory to one or more members.

Right to bring legal action on behalf of the company

A shareholder has the right to apply to court for permission to commence legal action or arbitration on behalf of the company, or to intervene in a lawsuit or arbitration which the company is a party of, provided that the action is good faith and appears to be in the interests of the company.

Adequate notice must be given to the directors, and the directors must have decided not to commence the necessary proceedings, before the individual member can commence such action.

Right to apply for “just and equitable” winding up

A shareholder has the right to apply to court to wind up the company on “just and equitable grounds” in exceptional cases, such as where:

• Equal shareholders are at complete odds as to a company’s direction and therefore no decision can be made in terms of this or daily operations;
• Relations between shareholders have completely broken down; or
• The company is no longer able to carry out the main business for which it was formed.

Rights in the Event of Company’s Winding Up Due to Insolvency

Right to recover sums owed to you (subject to other creditors’ rights)

If a company you invested in is being wound up due to insolvency, you may have a right to recover a portion of the dollar value of your shares, alongside other sums owed to you (e.g. where final dividends were declared but not yet paid to you).

However, it is important to note that your rights as a shareholder to such amounts rank below the claims of all other creditors who are not shareholders, such as secured creditors and employees who are owed wages.

As a result, you will only be paid if the company has any remaining assets after satisfying the claims of these other creditors. You may thus receive less than the sums that you invested or which were promised to you, or even nothing at all.

Right to protection of personal assets from company’s creditors

Shareholders have the right to have their personal assets protected in the event of the company’s insolvency. No person or company will be allowed to seize your personal assets to help satisfy the company’s outstanding debts.

Thus, the maximum financial loss that you may experience in the event of the company’s insolvency and winding up is the full amount that you’ve spent to purchase your shares.