Dual Class Shares and Issue of Shares with Different Voting Rights
Updated: Apr 18, 2021
Generally, subject to any written law to the contrary, a share in a company confers on the holder of the share the right to one vote on a poll at a meeting of the company on any resolution (referred to as an “ordinary share”).
In a company with a dual class share (DCS) structure, certain shareholders have more voting rights than their stake in the company.
What is dual class share?
When companies want the owner-managers to retain control of the business, they will opt for DCS structures. Such companies grant certain shareholders outsized voting rights relative to their economic interests in the companies.
The DCS structure attracts high-growth companies, such as companies in the technology and innovation sectors. It enables them to use the capital market to raise funds to quickly expand their business, while the owner-manager maintains voting control to execute the company's long-term strategy.
How this works
Under the DCS structure, voting rights are not proportional to shareholding.
Most companies operate on a one-share, one-vote basis. However, DCS companies have two classes of voting shares - shares in one class carry one vote, and shares in the other class carry multiple votes.
For DCS companies listed on the SGX, the voting rights attached to multiple-vote shares will be limited to 10 votes per share.
This structure allows shareholders with multiple voting rights to have more say in the company's running and business strategies.
If you choose to invest in such a company, you will have to accept that your voting rights are diluted. However, if you believe in the company's development prospects and the importance of leadership, then you may be willing to accept a smaller voice in the company.
Shares with different voting rights
Public companies may issue different classes of shares with different voting rights only if (i) the public company’s constitution provides for the issue of the class or classes of shares and sets out in respect of each class of shares the rights attached to that class of shares, and (ii) the members of the public company approved the issuance by special resolution.
Preference shares are usually understood to be shares that confer preferential rights in respect of certain matters over ordinary shares (e.g. rights to payment of dividends and return of capital in a liquidation), and may have certain voting rights or none at all.
Different classes of shares in a public company may be issued only if
(a) the issue of the class or classes of shares is provided for in the constitution of the public company; and
(b) the constitution of the public company sets out in respect of each class of shares the rights attached to that class of shares.
Shares in a public company may confer special, limited, or conditional voting rights; or not confer voting rights.
Requirement for approval by members of the public company by special resolution
A public company shall not undertake any issuance of shares in the public company that confers special, limited or conditional voting rights, or that confers no voting rights unless it is approved by the members of the public company by special resolution.
Where a public company has more than one class of shares with different voting rights, a special resolution may be passed at the company’s annual general meeting to approve generally the issuance of shares with certain specified voting rights.
The requirement for approval by members of the public company by special resolution may be satisfied:
(i) where a company passes one special resolution to approve both (i) the issuance of shares and (ii) the issuance of shares with different voting rights; or
(ii) where a company passes a special resolution to approve a general mandate authorising the issuance of shares with different voting rights, with no specific validity period.
A special resolution is required to be passed by members of the public company to approve a proposed issuance of shares with different voting rights, but it does not require a separate special resolution to be passed for each separate issuance of a class or classes of shares by the public company.
A public company is not required to specify on its notice of general meeting the rights in respect of classes of shares with different voting rights that are neither issued nor outstanding
Where a public company has one or more classes of shares that confer special, limited or conditional voting rights, or that confer no voting rights, the notice of any general meeting required to be given to a person entitled to receive notice of the meeting must specify the special, limited or conditional voting rights, or the absence of voting rights, in respect of each such class of shares.
Information on the voting rights for each class of shares must accompany the notice of meeting at which a resolution is proposed to be passed. This ensures that persons entitled to receive notice of a general meeting of the public company are informed about the voting rights of each class of shares which may be exercised at the general meeting. A public company is not required to specify on its notice of general meeting the rights in respect of classes of shares with different voting rights that are neither issued nor outstanding, because there will be no voting rights to be exercised in respect of such shares at the general meeting.
If you have any clarifications, you may contact Bestar.