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3 November, 2016

Dear Readers,
The move towards dual-class share structures on the Singapore stock exchange is a good occasion to discuss how business owners of private companies have even more freedom to create different classes of shares for their needs 
- Koh C-u Pinn, Arielle Law Corporation

A short guide to creating different classes of shares for business owners


Recently, it was announced that the SGX was now closer to allowing dual-class share structures on the Singapore Stock Exchange after the Listings Advisory Committee voted in their favour. 

Private companies, on the other hand, have always been free to create different classes of shares for themselves. Business owners can take advantage of different classes of shares to cater to different investors and stakeholders. 

In general, there are no fixed legal sets of share classes. The different classes of shares are defined by the company in its Constitution and the rights and obligations of each class can be customised. Below are some common types of share structures used by companies:


Preference Shares

In most cases, preference shares give their shareholders preferential dividend rights in return for giving up voting rights. However, there are many ways to vary the voting and dividend rights attaching to different classes of shares. Certain shares may be given no voting rights, double voting rights, or even higher differential voting rights of 5, 10, or even 100 votes to 1 share.

Management Shares

In some cases, management of the company has shares that have enhanced voting rights. This could be in the form of the shares having more voting rights. This makes it easier for management to undertake actions that may require shareholder approval, such as taking on large loans for investment and growth.

Limits on Variation of Shareholder Rights

Shareholder rights may be varied. However, there are some rights that every shareholder is entitled to.  One of them is the right to attend general meetings of the company and to speak prior to the passing of any resolution taken at that meeting, being resolutions to voluntarily wind up the company, or resolutions to vary the rights attached to the share held by that particular shareholder.

Creating different classes of shares is a very customised process that requires amending the company constitution and the relevant shareholder agreements. It is best to first seek legal advice to review your needs. 

Koh C-u Pinn Picture
Koh C-u Pinn is a director at Arielle Law Corporation, a boutique law firm that provides individualized services tailored specifically to your needs. 

Simply email us at ask@ariellelaw.com, or give us a call at (+65) 6268-8963 to chat with us about your needs. We are always happy to discuss what works best for you, whether over email, the phone, or a freshly brewed cup of coffee.
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