There are two ways to add a new shareholder to a company incorporated in Singapore.
- Share Allotment: Brand new shares are issued to the new shareholder.
- Share Transfer: Ownership of existing shares is transferred from an existing shareholder to the new shareholder.
Method 1: The Share Allotment Process (Issuing New Shares)
Share allotment is the preferred method when a company needs to bring in fresh capital. This is a common strategy for small and medium-sized enterprises (SMEs) looking to fund growth, launch new ventures, or secure investment from external parties.
Step 1 – Obtain Board & Shareholder Approvals
Before any shares can be issued, the company must first secure the correct internal approvals.
This begins with the board of directors, who must pass a formal Directors’ Resolution to approve the issuance of new shares. This resolution documents the decision, including the number of shares to be allotted, the terms of their issuance, and the price.
Following this, the directors must obtain approval from the existing shareholders, either through a general meeting or a written resolution.
Step 2 – Prepare The Documentation
Once the necessary approvals are obtained, the company secretary prepares the essential legal documents to formalize the allotment. These documents typically include the Directors’ Resolution and any minutes from a general meeting.
The company secretary is also responsible for preparing the share certificates for the new shareholders. These certificates are legal documents that confirm ownership and must be prepared with meticulous attention to detail. They must specify the shareholder’s name, the number and class of shares they hold, and the payment status.
Step 3 – Filing With ACRA
The final step is the statutory filing with ACRA. For private companies, the company must file a Return of Allotment of Shares through the BizFile portal within 14 days of the shares being issued.
This filing updates the company’s official records on the ACRA register to reflect the change in share capital and shareholding.
The filing must include key information about the allotment, such as the total number and class of shares issued, the payment status of the shares (fully or partially paid), and the full particulars of the new or existing shareholders.
Method 2: The Share Transfer Process (Selling Existing Shares)
This method is frequently used when a founder exits the business, a shareholder sells their stake to an investor, or in internal family succession planning.
The process is different from allotment in that it primarily involves the seller and the buyer, but the company still plays a pivotal role in approving the transaction and updating its official records.
Step 1 – Board Approval & Share Transfer Agreement
The process begins with the seller (or transferor), making a written request to the company’s board of directors to approve the transfer. The board has a statutory period of 30 days to approve or deny the request.
A Directors’ Resolution is then passed to formally approve the transfer. The transferor (seller) and transferee (buyer) may also enter into a formal Share Transfer Agreement to document the terms and conditions of the sale.
Step 2 – Documentation & Stamp Duty
The central legal document for this process is the Instrument of Transfer (or share transfer form). This is an official document that must be signed by both the transferor and the transferee, with the signatures witnessed by an individual over 18 years of age.
A key financial and legal obligation for a share transfer is the payment of stamp duty to the Inland Revenue Authority of Singapore (IRAS). The Instrument of Transfer must be stamped with IRAS within 14 days if it is executed in Singapore, or within 30 days if it is executed overseas and subsequently brought into Singapore.
The stamp duty is calculated at a rate of 0.2% of the higher of two values: the consideration (the actual purchase price) or the Net Asset Value (NAV) of the shares being transferred.
If a shareholder transfers their shares as a “gift” with zero consideration, stamp duty is still payable based on the company’s NAV.
Step 2 – Filing With ACRA & Updating Records
After the Instrument of Transfer has been signed and stamped, the company must notify ACRA of the change.
For a private company, the share transfer is not considered legally effective until ACRA receives the notification and updates the company’s electronic Register of Members. This administrative step is the final, legally binding action that validates the change in ownership.
The company must also prepare a new share certificate for the transferee and cancel the old one, reflecting the transfer of ownership from the seller to the buyer.
Share Allotment Vs Share Transfer
The choice between a share allotment and a share transfer is determined by whether the company is raising capital or simply restructuring its ownership.
To differentiate between these two methods of adding a shareholder, it is useful to consider their effect on the company’s capital structure.
A Share Allotment creates new equity in the company. The payment for these shares is made directly to the company, resulting in an increase in the company’s issued share capital. This serves as a fundraising mechanism.
In contrast, a Share Transfer is the sale of existing shares from one owner to another. This does not change the company’s total issued share capital. A share transfer can take place when a founder is selling a portion of their shares to an external party or an investor.
Conclusion
Register of Members: The most important takeaway for any business owner is that the process is not complete until the company’s official corporate records, particularly the Register of Members, are updated in ACRA. This final administrative step is what provides legal validity to the change.
Professional Assistance: The process can be complex, and any mistakes could lead to legal and administrative difficulties. Many companies choose to engage a corporate secretarial service provider to manage these changes and ensure compliance. Read our article on how to find the right corporate secretarial service provider.
