A company may issue different types (also known as “classes”) of shares. These can include:
1. Ordinary Shares
Ordinary shares are the most common type of shares. They typically carry voting rights but do not give shareholders rights to receive or demand for dividends.
Ordinary shareholders also receive less dividends compared to shareholders who hold preference shares. Companies may divide their ordinary shares into different classes (e.g. “A” and “B”) with different rights attached to each class.
2. Preference Shares
Preference shares confer some preferential rights on the holder, superior to ordinary shares. Normally, the preferential rights are the rights to fixed dividends, priority to dividends over ordinary shares and to a return of capital when the company goes into liquidation.
3. Redeemable Preference Shares
Redeemable preference shares allow for the repayment of the principal share capital to shareholders. The company may redeem these shares at an agreed value on a specified date or at the discretion of the directors. This is on the condition that the company is a going concern.
Any redemptions can be paid out of the company’s capital using proceeds from a fresh issue of shares. The directors must lodge a solvency statement with ACRA under the “Notice of Redemption of Redeemable Preference Shares” eService via BizFile+.
4. Convertible Preference Shares
Convertible preference shares usually carry rights to a fixed dividend for a particular term. At the end of the term, the company can choose to convert it into ordinary shares or leave them as they are. Conversion prices must be specified in the company’s constitution. If the price of an ordinary share rises, the conversion prices will not follow. It is essentially allowing the shareholder to purchase ordinary shares at a lower price. The relevant transaction in BizFile+ is “Conversion of Shares”.
5. Treasury Shares
Treasury shares are ordinary shares which the company acquired from shareholders. While the company is listed as the owner of the treasury shares, it is not allowed to exercise the right to attend or vote at meetings, and no dividends may be paid to the company.
The total number of treasury shares held by the company is capped at 10% of the total number of ordinary shares issued. Any excess treasury shares (i.e. more than 10% of the total number of ordinary shares) must be cancelled or disposed of within 6 months.
The company may sell, cancel or transfer the treasury shares under the "Notice of Cancellation or Disposal of Treasury Shares under S76K" eService via Bizfile+.
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Now, let's delve into the concepts outlined in the provided article:
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Ordinary Shares:
- Definition: Ordinary shares represent the most common type of shares issued by a company.
- Characteristics: They usually carry voting rights but do not guarantee dividend payouts.
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Preference Shares:
- Definition: Preference shares grant certain preferential rights to shareholders over ordinary shares.
- Rights: These rights may include fixed dividends, priority in receiving dividends over ordinary shareholders, and preference in capital return during liquidation.
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Redeemable Preference Shares:
- Definition: Redeemable preference shares allow the company to repay the principal share capital to shareholders.
- Conditions: Redemption can occur at an agreed value on a specified date or at the discretion of the directors, provided the company is a going concern.
- Funding: Redemptions can be funded from the company's capital through proceeds from a fresh issue of shares.
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Convertible Preference Shares:
- Definition: Convertible preference shares entitle shareholders to a fixed dividend for a specific term.
- Conversion: At the end of the term, the company has the option to convert these shares into ordinary shares or maintain them as convertible preference shares.
- Conversion Prices: The company's constitution must specify conversion prices, allowing shareholders to purchase ordinary shares at a predetermined price.
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Treasury Shares:
- Definition: Treasury shares are ordinary shares repurchased by the company from shareholders.
- Ownership: While listed as the owner, the company cannot exercise voting rights or attend meetings.
- Limitations: The total number of treasury shares is capped at 10% of the total ordinary shares issued.
- Disposal: Excess treasury shares must be canceled or disposed of within 6 months.
The article emphasizes the regulatory procedures involved in various transactions, such as redemptions and conversions, as evident from the references to ACRA and specific eServices in BizFile+. It provides valuable insights into the diverse types of shares companies may issue, offering a comprehensive understanding of the nuances of corporate finance and governance.
