Difference between preference and ordinary shares
2 minute read
The majority of businesses that are incorporated in Singapore are private companies limited by shares.
What does this mean? Each shareholder of the company owns a certain portion or percentage of the company expressed by the number of shares held in the capital of the company.
The two main classes of shares are Ordinary Share(s) and Preference Share(s). They differ from one another based on the benefits and rights attached to the share(s). Continue reading to find out more about the differences between both.
Preference shares are commonly subscribed or allotted to give priority to the holder(s) over matters such as return of capital upon liquidation of the Company. In most cases, preference shares do not include general rights to vote. The rights to the preference share(s) differs for each Company and should be set out in the Company’s Constitution in accordance with the Singapore Companies Act.
Ordinary shares are the main type of share(s) among private limited Companies. The holder(s) of ordinary share(s) are generally entitled to one vote per share subject to the Company’s Constitution.
Companies can create different classes of ordinary/preference share(s) such as Class A, Class B and Class C shares.
Why are these created?
The sub-classes of share(s) are generally created to establish different rules between different groups of shareholder(s) and to allow easy recognition of the different types of share(s) in the Company.
Both types of shares illustrate a claim in corporate earnings and assets. Different types of shares have their own advantages and appeal to different types of investors.
When choosing the types of shares, you need to evaluate all the points and see which one will suit you the best. If you are looking to expand or start your company in Singapore, contact us to find out more.