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1. There has been recent interest in dual classes of shares. The use of imprecise terms in public commentaries might have contributed to confusion in the marketplace. Investors should not mistake a capital structure of ordinary and preference shares with a capital structure involving dual-class ordinary shares (known as common stock in some jurisdictions). They are completely different. The purpose of this regulatory column is to provide clarity on differences between the two.
Ordinary Shares and Preference Shares
2. Ordinary shares and preference shares are different categories of securities with different characteristics. They have different rights to economic benefits, dividends, liquidation preference and bear different risks. This is not the case for dual-class ordinary shares. They are within the same category of securities with essentially the same economic benefits and bearing the same risks. But the two classes of ordinary shares differ substantially in voting rights.
3. Singapore, like in most jurisdictions, allows companies to list both ordinary and preference shares. All companies listing on the SGX have to observe rules regarding ordinary and preference shares. We administer our rules in an even handed manner so that the same high admission standards and continuing listing requirements apply to all listed companies, regardless of their country of incorporation.
4. All ordinary shareholders have the same rights and powers. They bear the ultimate risk in relation to a company’s financial performance and well-being, and typically have a lower priority in terms of dividend payment and liquidation claims when compared to debt securities holders and holders of preference shares. For assuming such risks, ordinary shareholders have voting powers to influence and collectively decide the company’s actions. Preference shareholders, with different entitlements and returns, bear different risks from ordinary shareholders, and as such normally do not have voting rights except on matters that affect their fundamental rights.
5. Investors seeking to acquire control of a company have to own ordinary shares. Voting rights of a shareholder would be proportionate to the number of ordinary shares held. For instance, to acquire 25% of voting rights, an investor will need to expend financial resources to buy 25% of the company’s ordinary shares.
Dual-Class Ordinary Shares
6. Singapore does not allow the listing of dual-class ordinary shares. For jurisdictions that allow a dual-class ordinary share structure, it involves shareholders owning two different classes of ordinary shares with essentially the same economic benefits, returns, rights to dividends, rights in event of liquidation, and bearing the same risks. But the two classes of ordinary shares carry substantially different voting rights: single vote versus many votes. Holders of the multiple-vote ordinary shares have disproportionate voting rights that do not correspond with the number of ordinary shares owned.
7. Public shareholders are normally offered single-vote ordinary shares while the company's founders or controlling shareholders would continue to own the multiple-vote ordinary shares that are not offered to the investing public. Such a structure would allow multiple-vote ordinary shareholders, in expending limited resources, to maintain control of a company by owning a small number of ordinary shares. When resolutions are put to a vote, their voting rights would place them at an advantage in overcoming the voting rights of single-vote ordinary shareholders. This raises issues over entrenchment of control where the multiple-vote shares are not offered to the public. In the event that a take-over bid is being made to acquire the company, questions of the fair value of the multiple-vote ordinary shares vis-à-vis the single-vote ordinary shares may also arise.
Market Discipline
8. Singapore operates a market-driven and predominately disclosure-based regulatory regime with companies having the flexibility to structure the terms of an offer. Market discipline will dictate the success of an offer and the market, not the regulators, decides on the commercial merits and attractiveness of an offer.
