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” transaction 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 the company’s ordinary shares which have been acquired from shareholders. The company will be listed as the owner of the shares but is not allowed to exercise the right to attend or vote at meetings, and no dividends may be paid to the company.
The treasury shares that a company holds must be less than 10% of the total number of shares in that class. Below is an illustration of this legal requirement.
||Total Number of shares issued
||Maximum number of treasury shares that the company can hold (capped at 10%)
|Redeemable preference shares
Any treasury shares in excess of 10% must be cancelled or disposed of within 6 months. The company may sell, cancel or transfer the treasury shares.