Understanding the Rights and Liabilities of Shares in a Company

Introduction

Recent updates to company law have shed light on the rights and liabilities that shares in a company may carry. This article will explore the various types of shares, their rights, and liabilities, as well as the procedures for issuing new shares.

Types of Shares

Shares in a company can carry various rights, including:

Redeemable shares
Shares with preferential rights to distribution of capital or income
Shares with special, limited, or conditional voting rights
Non-voting shares

No Liability Imposed on Shareholders

A significant development is that shares must not impose liabilities on their holders. This means that a company cannot issue a share that requires its holder to make a payment to the company.

Initial Issue of Shares

New companies are required to issue shares to initial shareholders immediately after registration. The number of shares to be issued must be specified in the application for registration.

Subsequent Issues of Shares

Companies may issue additional shares, but only in accordance with their constitution or with the approval of all shareholders. Any such issues must be filed with the Registrar within 14 days and accompanied by a document setting out the terms of the issue if the rights attached to the shares are not set out in full in the constitution.

Pre-emptive Rights

Shares issued or proposed to be issued that rank equally with or prior to existing shares must be offered for acquisition to existing shareholders. This is intended to maintain their existing voting and distribution rights.

Consideration for Issue of Shares

The consideration for which a share is issued can take any form, including:

Cash
Promissory notes
Contracts for future services
Real or personal property
Other financial products

The directors must decide the consideration before issuing the shares and determine whether it is fair and reasonable to all existing shareholders.

A company must obtain written consent from a person before issuing a share that increases their liability to the company or imposes a new liability on them.

Conclusion

These changes aim to provide greater clarity and protection for shareholders in Singapore. By understanding the rights and liabilities associated with shares, shareholders can make informed decisions about their investments.