A Private Limited company limited by shares is the most common type of incorporated business structure in Singapore.
What this means in effect is that shareholders own the company while the directors manage the company. Accordingly, the shareholder’s liability for the company’s debts is limited merely to the capital invested i.e. the value of the shares— which means that in the event the company becomes insolvent, beyond losing money initially invested, the shareholders’ personal assets are still protected.
Shares held in a company by an individual represent that person’s stake of ownership in the business. In Singapore, there are matters pertaining to shares such as the requirements for a minimum of one issued share. Such shares may either be issued to individuals or to non-persons (companies) and non-Singaporean residents if you should so wish. As such, this does not necessarily represent the real value of the share or what the company is actually worth.
An individual shareholder is able to have many shares and each of these shares represents a vote in the company. As a result, the higher the percentage of shares a particular individual is allocated, the more control of the company they have— therefore, you have to think through carefully before you issue or allot shares, whom you want to have control of your company and in what manner that control is to be exercised. Also, because shares also entitle people to a share of the company profits (in the form of dividends), this will have an implication on your company’s finances at the end of the year.
While setting up a Singapore company, an individual who has contributed significantly to your business since its early stages either through their capital investment or through significant services or connections should ideally be given a large proportion of equity corresponding to their contribution. Generally, however, the founding member of the company who has long-term aspirations of staying with and growing the company should maintain the most control of the business and have the most equity.
At the end of the day, the best practices in distributing shares surround the key concept of a share distribution that is fair, reasonable and equitable.
Related Article: Shareholding structure options
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Mandy is an Associate Member of the Chartered Secretaries Institute of Singapore and a Fellow Member of Chartered Financial Practitioners of Singapore. She has over 20 years of experience in corporate secretarial work, accounting, assurance, taxation, and corporate recovery.