How founders can retain controlling stake in Singapore Startup

Case Study 1- Mr. Chun Yee is a director of the company CDF Pte Ltd. The company has raised investments from Angel Investor. Upon issuance of shares to the investors, the promoters’ shareholding in the company has significantly reduced, resulting in loss of controlling stake in the company. Mr. Chun Yee wants to know about the remedies available with the company to prevent such loss of controlling stake and the procedures laid in the Singapore Companies Act for abiding by such remedies?

How founders can retain their controlling stake in Singapore Startup

Solution:

To prevent from loss of promoters controlling stake, CDF Pte Ltd can, subject to its constitution, issue shares with differential voting rights to its promoters for their retention of controlling stake. Section 64A of the Companies Act, permits a private company to issue shares of different classes having special, limited or conditional voting rights or no voting rights, as the case may be. Thus different classes of shares may be issued with 0,1,3,5,10 or any number of votes per share as may be decided by the board in its general meeting. With the issue of such class or classes of shares with differential voting rights, CDF Pte Ltd can facilitate to keep the controlling stakes with the promoters of the company.

If such issue is not permitted by the constitution of  CDF Pte Ltd, the same shall be amended in order to incorporate clauses permitting issue of different classes of shares. However, if the constitution permits the issue, the resolution required to be passed shall contain detailed information of the class of shares to be issued.

So how can the constitution of CDF Pte Ltd be amended?

The constitution of the company can be amended by passing special resolution in general meeting of the company. The day when the resolution is passed, the alteration, as approved, shall form part of the constitution. The resolution altering the constitution shall be filed with the registrar within 14 days of passing such resolution.

 

What are the procedures to be followed for issuance of such shares?

CDF Pte Ltd can allot shares at any time since Companies Act does not impose restrictions on Private companies, other than passing ordinary resolution in the general meeting, for issue of such shares. The following procedure and documentation shall be required:

– DRIW to convene the EGM
– Notice of EGM
– Proxy Forms (if necessary)
– Attendance List
– Minutes of EGM
– Notice of Resolution
– Lodgement with the ACRA
– Preparation and Issuance of Share Certificate
– Update Register of Members

Hence, the remedy available with the company is issue of shares with differential voting rights which shall make the promoters retain the controlling stake even if the number of shares held by them are not in majority.

 

Finding the compliances complex? We at Taxmantra Global Network Firms have years of experience and can make the procedure hassle free for you. We are reachable at [email protected]

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