Allotment and Issue of Shares

As a company owner or shareholder, it is important to distinguish the meaning of issue of shares and allotment of shares.

Generally speaking, the issuance of shares refer to the process by which your company gives shares to either new or existing shareholders.

On the other hand, allotment of shares refer to the process of creating shares and giving them to people new shareholders only.

Legal definition

Historically, the meanings for allotment and issue of shares have often been interchangeably used in most legal text. As evidenced in section 161 of the Companies Act, there are actually 2 stages involved, namely, allotment and issue, as further explained below.

Section 161 states that company directors have no right to issue shares without approvals reached in general meeting, which will remain valid until:

  • the next Annual General Meeting (AGM) of your company is concluded; or
  • the expiration of the period required by your company to hold the next AGM.

Either of the two is applicable if it comes earlier that the other, but your company must hold a general meeting to revoke or vary the issuance of shares.

One of the main agendas in the general meeting is to pass an ordinary resolution with the purpose of approving the exercise of power by your company directors to issue shares. You must also lodge a duplicate of the resolution with ACRA.

The meaning of issue is similar to when your company wants to give shares to investors or shareholders. This usually occurs when a company invites people to subscribe to the shares at a pre-set rate.

The Meaning of “Allotment”

Legally speaking, the terms “allotment” of shares and “issue” of shares cannot be used interchangeably. “Allotment” is the official act of appropriation by the company to a person of a specific number of shares but this does not have to refer to specific shares.

On the other hand, when your company “issues” a share to a person, that individual usually gains control of the allotted shares. It is also important to note that when new shares are issued to existing or new shareholders, several types of allotment arise.

When a company carries out the act of allotment whether through the board or a committee of its board, it is actually assigning or appropriating a specific amount of its unissued shares to a specified person.

However, the allotment in itself does not make that person a member of the company.

The Process - Allotment of shares

All the individuals who will be interested in subscribing to your company shares must duly fill an application form to ratify their intent. To allot the shares, they must submit the form along with the remittance to the company’s board of directors.

Once the allotment is completed, the Companies Act requires that you must lodge a “Return of Allotment of Shares” with ACRA in order to confirm the particulars of the allottees, the amount paid (or unpaid) on the allotment of the shares, the class of the shares, and the number of shares allotted.

After the approval to issue shares has been obtained by the directors, subsequent allotments of shares by the company do not require any approval, as the approval will remain valid until the next Annual General Meeting (AGM) of your company is concluded; or the expiration of the period required by your company to hold the next AGM.

The company is only required to lodge the “Return of Allotment of Shares” with ACRA whenever there is any subsequent allotment. Other than a deemed allotment (this refers to the issuance of shares without formal allotment to subscribers to the company’s constitution upon the incorporation of a company), a private company’s allotment on or after 3 January 2016 does not take effect until your company has lodged the “Return of Allotment of Shares” with ACRA and the electronic register of members has been accordingly updated by ACRA.

Prior to 3 January 2016, private companies each had to maintain a manual register and update it with the current shareholding of the company.

When it comes to private companies, any issuance of shares must comply with the terms of s 161 of the Companies Act or such issue would be void (and the shareholder would be able to recover the consideration he/she provided for the shares) though the Singapore Court may subsequently authorize any inappropriate issue or allotment of shares, which it will typically do if it would be just and equitable taking into account all the circumstances.

Issuance of shares by a public listed company is significantly more complicated, and will involve restrictions as covered below. Typically for public listed companies, the approval pursuant to section 161 of the Companies Act will be included as one of the ordinary business to be approved by shareholders at the AGM irrespective of whether there is an intended allotment of shares or not.

As such, public listed companies do not need to specifically organise an Extraordinary General Meeting (EGM) with the sole purpose of approving the allotment of shares pursuant to section 161 when there is a need for allotment of shares after the AGM.

This will assist with the operation of public listed companies as convening an EGM can be costly and time consuming.

The Process - Issuance of shares

To put the allotment of shares into perspective, you must know that it is a binding contract that your company must fulfil all obligations therein, especially by completing the allotment of the specified amount of shares. This is because the individuals who offered the deal to allot the shares is usually bound by the acceptance as well as the fact that they have to accept that specific amount of shares.

As soon as acceptance has taken place, the subsequent stage is to issue the shares. This involves providing the shareholder with complete control over the shares. The House of Lords has held that the allotment and registration of shares are distinct procedures and that shares are issued only when they are registered.

Allotment carries with it the right to be registered, which comes with a title. If an individual in your company allots shares to another individual, he/she is considered to be in the same good position when comes to their equity. However, you should never consider the terms “issue” and “allotment” to mean the same thing.

Contract Arising from Application for Shares

The usual way for a person to become a shareholder of a company, apart from the transfer of shares from another person (already a shareholder), is by contract with the company arising from an application to the company for shares accompanied by all or part of the subscription amounted to the company.

Where only part of the subscription amount is paid, the shares will be partly paid up. The application for shares is the offer, and the notice to the applicant of the acceptance of this application is the acceptance. The ordinary rules of contract law (including offer and acceptance) will apply. Upon receiving an application, the company’s board of directors decides whether to accept such application, and allot the shares to the applicant.

The applicant will not become a member of your company until:

  • ACRA updates the electronic register of members in relation to a private company; and
  • The company for public companies updates the register of members (in as much as the register is considered prima facie evidence of such companies’ shareholdings).

The applicant will receive a share certificate (or “share scrip”) or a statement similar to a bank statement to indicate how many shares they hold (where the company is listed on the SGX and the applicant has a “scripless” shareholding).

Alternative to Take up Shares

At some point in time, your company may decide to issue options to any person allowing him/her to take up unissued shares in the company at a future date if he/she chooses, typically within a period of 5 years.

An alternative in a public company that enables any person other than an employee to engage in the taking up of unissued shares of the company can be considered null and void with respect to time factors. In Singapore, this option usually stops being in force after a period of 5 years has passed by starting from the date on which the alternative was established.

Where the option is granted to one of your company’s employee’s or even a related corporation that works together with your company, such alternatives shall be void if it enables the employee to take up unissued shares more than 10 years after the option was granted.

Conclusion - Allotment and Issuance of shares

Now that you have comprehensively learnt about the issue and allotment of shares, it’s important to explore and master the reasons why a company may wish to use the different types.

If you are a company owner or a shareholder in Singapore who needs guidance on matters concerning the Allotment and Issue of Shares, contact us today and we will take it up with you every step of the way.