PUBLIC companies in Singapore will soon be able to offer shares with multiple voting rights, as parliament approved a bill on Wednesday resulting in the largest number of proposed reforms to the Companies Act since its enactment.
The Companies (Amendment) Bill proposed the removal of the one-share-one-vote restriction for public companies, to give them greater flexibility in raising capital, and provide investors with a wider range of investment opportunities.
"The United States, the United Kingdom and Australia already allow companies to issue classes of shares with different voting rights subject to the companies' articles, although in Australia, listed companies are prevented from doing so by listing rules," Senior Minister of State for Finance and Transport Josephine Teo said in Parliament.
"Clearly, there are benefits and drawbacks in allowing shares with different voting rights. However, I should point out that the concept of such shares is not entirely new in Singapore and they have been permitted in private companies for some years."
Moreover, Mrs Teo added that in the Companies Act amendments of 2003, the one-share-one-vote restriction was lifted for private companies that are subsidiaries of public companies and that the government has now decided to lift the restriction in the Companies Act for public companies in view of global developments anddemandsof increasingly sophisticated investors.
"The change will not affect listed companies for now, as MAS and SGX are still deliberating on the issue.
Rather, it is the 800 or so non-listed public companies that can takeimmediate advantage of the liberalisation." Some members of Parliament, however, expressed concernsonwhether Singapore should allow a different shareholder classification regime. Ong Teng Koon highlighted the need to mitigate the risks in allowing shares with different voting rights, while Liang EngHwacalledon educating retail investors on this change as well as raising the question of determining prices for the different classes of shares.
"Mr Ong has highlighted the need to mitigate the risks in allowing shares with different voting rights. Although Mr Ong's comments are made in the context of shares of listed companies, I would like to assure members that the Bill will put in place checks and balances for all public companies, whether or not they are listed."
Specifically, she added, the Bill will require public companies to specify the rights for different classes of shares in their constitutions, and clearly demarcate the different classes of shares so that shareholders knowthe rights attached to any particular class of shares.
On Mr Liang's point, Mrs Teo explained that pricing of different classes of shares will be determined by the issuing companies and may involve valuation by investment banks and road shows with potential investors.
"Ultimately, investors will have to assess whether the premiums or discounts offered for each class of shares are fair."
This measure came out of a comprehensive review of the Companies Act done by a Steering Committee led by Professor Walter Woon, set up by the Ministry of Finance (MOF). Other amendmentsto theCompaniesAct include the introduction of a "small company"concept to determine audit exemption, replacing the current criterion where a company is exempted from auditing its accounts annually only if it is an exempt private companyand has annual revenue of S$5million or less.
"In future, to qualify for audit exemption as a 'small company', a company must be a private company that meets at least two of three criteria for each of the previous two financial years, which are: total annual revenue not more than S$10 million; total assets not more than S$10 million; or number of employees not more than 50," Mrs Teo explained.
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