A simple guide to shares for startups

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Want to start-up your own company but feel baffled by all the jargon? Don’t worry, we know that the process of incorporating a company can be confusing. In this short article, we explain the complicated terms in plain language and simplify the steps of how to issue shares in your company.

What are shares?

A private limited company is a separate legal entity in its own right. It is owned by its shareholders. When an individual becomes a shareholder they become an owner of a company. So, shares represent the amount of ownership that a shareholder has in the company. To keep things simple most companies value 1 share at SGD 1.00.

 

In return for investing into the company, the shareholder receives rights in the company such as the right to remove the director and the right to contribute to decision making by voting power.

How many shares shall I issue to start my company?

When a company is incorporated in Singapore, a minimum of SGD 1.00 (or its equivalent in any currency) must be paid by the shareholder into the company to register the company in return for shares. So, it is possible to pay only SGD 1.00 and issue 1 share to get started. The SGD 1.00 that has been paid up in return for the issue of a share is called Paid-up capital.

What is Paid-up capital?

In basic terms, Paid-up capital is the portion of shares that the company has issued and received payment for in full.

Can I issue more shares later?

Yes. The company may increase the amount of money paid in by issuing more shares at any time after incorporation. There is no limit to the amount of shares that you can issue in Singapore.

What is share capital?

The term ‘share capital’ refers to the funds that the company raises in exchange for issuing ownership in the company in the form of shares.

Is it possible to issue shares now and pay for them later?

Yes. In Singapore, a company may issue shares to investors with the understanding that they will be paid a later date. This allows for more flexible investment terms. The amount of share capital that shareholders owe but have not paid is referred to as un-paid capital. Once the company makes a request for the payment it becomes called-up capital.

What is issued share capital?

Once a shareholder is entered in a company’s register of members, the shares have been issued. The issued share capital of the company is the total number of shares that have been issued in the company multiplied by the nominal value of each share. It comprises both paid-up and un-paid capital.

Wrap up

One final point worth considering is that because a company is a separate legal entity the ownership of shares does not give the shareholder a legal interest in the company’s property, or assets. However, shares do give the shareholder certain rights which are defined by the company’s constitution while the company exists and is a functioning business.

 

When the company is no longer functioning, the shareholder will have the right to a portion of the value of the company’s assets. When the company exists as a functioning business, the separate legal identity protects the shareholders (and directors) from personal liability should the company encounter financial problems.

 

You can find out more about company incorporation and formation on our

resources page

 

If you are ready to start-up your company in Singapore, contact us now to find out more about how we can help you.

 

 

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