In a nutshell, shares represent ownership in a company. When a company is created, the founders of the company must determine who owns the company. Often the founders also become the first shareholders of the company. The first, and most important, step in establishing a Singapore company, is to determine who owns how many shares. This is usually expressed as a percentage of the total number of shares and it is this percentage that is very important to each founder.
This article provides a high-level overview of the nature of shares and different classes of shares and is meant for first-time entrepreneurs of Singapore startups. Note that this is neither a comprehensive compilation of all relevant information on this topic nor a substitute for professional advice.
Nature of Shares
The most popular definition of a company’s share was originally voiced by the honourable judge in the English High Court of Borland’s Trustee v Steel Brothers & Co Ltd : “A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with… the Companies Act.”
Essentially, the definition characterises shares as a bundle of rights and obligations that are given to the shareholder in return for investing in the company. The shareholder does not have a legal or beneficial interest in the company’s property, since a fundamental principle of company law is that the company is a separate legal entity. Instead, the shareholders, by virtue of their ownership of the shares, are entitled to participate according to the terms of the company’s constitutional documents as long as the company is a going concern, and they are entitled to participate in the assets of the company if and when the company winds up.
Shareholders can be issued with shares at any point, whether at the time of incorporation or subsequently as the company grows, and their ownership of the shares is evinced by share certificates that are issued to them.