Understanding the Shareholding Structure of your Pte. Ltd.
The Shareholding Structure of your Pte Ltd in Singapore is an important factor that can affect your business performance and potential. Therefore, it is essential to have a clear and fair agreement among the shareholders and to comply with the legal requirements in Singapore. If you need any assistance with setting up or managing your Pte Ltd in Singapore, contact us today for a free consultation and quote
Key Characteristics of a Pte. Ltd.
A private limited company is a type of limited liability company (LLC) that has less than 50 shareholders and does not offer its shares to the public. In Singapore, most businesses that are privately incorporated are registered as private limited companies. The name of a private limited company in Singapore usually ends with Private Limited or Pte Ltd.Â
The shareholders of a private limited company can be individuals, corporate entities, or both. A private limited company (Pte Ltd) is one of the most popular and preferred types of business entities in Singapore. It is a legal entity that is separate from its shareholders and directors, and has its own rights and obligations.Â
A Pte Ltd can have up to 50 shareholders, who can be individuals or corporations, and at least one resident director, who must be a Singapore citizen, permanent resident, or holder of an employment pass or dependent pass. A Pte Ltd must also have a company secretary, who must be a resident in Singapore and qualified to perform the duties
Shareholders
A shareholder is a person or entity that owns a portion of a company’s shares. The shareholding structure of a company determines how the ownership, control, and profits of the company are distributed among the shareholders. A shareholder is a person or entity that owns a part of a company’s shares.Â
Owning shares does not mean that the shareholder owns the company’s property, assets or intellectual property. Rather, it means that the shareholder has certain rights as defined by the company’s constitutional documents as long as the company exists and operates as a business. When the company stops operating, the shareholder has the right to a share of the value of the company’s assets.
Types of Shares and Shareholders
Ordinary shares
In a private limited company (Pte Ltd), ordinary shares are the most common type. Ordinary shareholders have voting rights on key matters like appointing directors, changing the company name, or altering the constitution. They can receive dividends and claim a share of assets in liquidation but risk losing their investment if the company fails. Decisions requiring their approval include issuing new shares, borrowing money, or winding up.
Preference shares
Preference shares provide advantages over ordinary shares, such as receiving dividends or priority in liquidation. These shares typically do not carry voting rights, unless dividends are unpaid or their rights are affected by a change. Preference shares can be cumulative, non-cumulative, redeemable, convertible, or participating, each with its own characteristics. The impact of preference shares on the company and shareholders can vary, influencing scenarios such as raising capital, attracting investors, or facing financial difficulties.
Majority shareholdersÂ
Majority shareholders own over 50% of a company’s shares and wield significant control over its direction and governance. They can influence or override decisions made by directors and minority shareholders through their majority vote. They must act in good faith and the company’s best interest. Their consent or veto is needed for actions like selling shares, entering contracts, or appointing auditors.
Minority shareholders
Minority shareholders own less than 50% of a company’s shares and have limited power. They can voice opinions on key matters, like receiving dividends or accessing information. They can seek legal remedies if treated unfairly, such as applying for an injunction, filing a lawsuit, or requesting a buyout, under Singapore law.
Shareholding Structure
Shareholders do not have a role in the daily management of the company, but they have some powers under Singapore law, depending on the class of shares. Below are key rights for the different types of shares and shareholders :
Ordinary Shares
- Shareholders have the right to attend general meetings and vote on important matters such as electing the board of directors and proposing or voting on resolutions.
- Dividends from the company’s profits are distributed based on the proportion of shares held by each shareholder, unless there is a specific agreement stating otherwise. Different classes of shares may receive different dividends.
- Â In the event that the company closes or fails, shareholders are entitled to a portion of any remaining assets after the company’s debts and costs have been paid. The distribution of these remaining assets is usually based on the proportion of shares held by each shareholder, unless there is an agreement stating otherwise. Sometimes, the company’s Articles may give priority to one class of shares over another in distributing the remaining assets.
Majority Shareholders
- Majority shareholders have the authority to veto certain types of capital reduction for a public company, change, adopt, or cancel any provision in the company’s Constitution, approve auditors, and remove directors.
Minority Shareholders
- Minority shareholders have rights granted by the company’s Constitution, including the right to information about the company’s affairs, the right to attend, vote, and call general meetings, and the right to be treated fairly. They can seek remedies under Section 216 if they feel their rights are being violated. Minority shareholders also have the remedy of winding up the company.