Simple Guide to Shares
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 share is an indivisible unit of capital, expressing the ownership relationship between the company and the shareholder. The denominated value of a share is its face value, and the total of the face value of issued shares represent the capital of a company.
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. So, shares represent the amount of ownership that a shareholder has in the company.
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.
What is Issued Share Capital?
Issued share capital is simply the monetary value of the shares that a shareholder has to pay in exchange for the shares of the company. 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. There are no limitations on the nominal value per share. It comprises on both paid-up and un-paid 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 from shareholders. These shares can be ordinary shares, preference shares or some other class of shares.
Paid-up capital can be freely used for company’s business purposes unless not violated with the restrictions in the company’s constitution. If the company becomes insolvent, the company’s paid-up capital will be used to repay creditors.
How many shares shall I issue to start my company?
The minimum issued capital must be at least $1.00 and needs to indicate the total amount that each shareholder have paid for their shares to incorporated a company in Singapore.
What is Stamp Duty?
Stamp duty is payable on the share transfer document when you acquire shares. It is payable on the actual price or market value of shares, whichever is the higher amount. The stamp duty rate is 0.2%.
The transferor and the transferee usually decides among themselves who is liable for the payment of the stamp duty and stated on the agreements. However, if the agreement does not state who shall pay the share duty, the transferee shall be the person to pay it by complying with the Third Schedule of the Stamp Duties Act.
When to pay the stamp duty?
Document needs to e-Stamp before signing it. No penalties will be charged if the document signed or e-Stamped within the following time frame:
- Within 14 days after signing the document if it is signed in Singapore
- Within 30 days after receiving the document in Singapore if the document is signed overseas
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.
If you are ready to start-up your company in Singapore, contact us now to find out more about how we can help you.