WHAT IS PREFERENCE SHARES
All the Singapore Company can increase their capital via issue of Ordinary Shares or Preference Shares. Ordinary Shares is the most common choice, if you held 1% of the Ordinary Share it means that you will have 1% of Company’s revenue .However this may be different from Preference Share which treated more like a loan to the Company with the following characteristic :
Preference Share’s Characteristic
- no voting right is mean that shareholder is not entitled to attend meeting or vote in the company matter
- with promised return dividend over the ordinary shareholder (however Company may reserve their right based on the performance of Company unless you are cumulative preference shareholder )
- Have more right over the ordinary shareholder in the event Company is winding up or bankruptcy
- have more right over the ordinary shareholder while dividend distribution
There are different type of Preference shares which attached with specific right decided by the management as follow :
Cumulative and Non-cumulative Preference shares
Cumulative preference shareholder is given fixed dividend return . If the Company not doing well the shareholder reserve their right to claim back the dividend on the following years .
Whereby Non-cumulative preference shares means that the distribution of dividend is fully depend on the performance of Company on that particular financial year .
Redeemable and Irredeemable Preference Shares
Redeemable preference shares means that Company can redeem the share back according to the agreement .However declaration solvency by the Company’s Director is needed during the redeemable process.
Irredeemable preference shares means that the shares does not have redeemable right and the shareholder will remain as owner for the whole lifetime of Company.
Convertible and Non-convertible Preference Shares
Convertible Preference Shares means that the holder is allow to convert preference shares to Ordinary Shares which allow them to enjoy benefit as Ordinary Shareholder.Whereby Non-Convertible is not entitled to do so.
Participating and Non-participating Preference Shares
Participating right means that Preference Shareholder is given right to participate in the surplus of company profit after distribution of dividend to all the shareholder including ordinary shareholder.
Why Company issue Preference Shares
- No Voting Right No voting right from preference shareholder is means that they not allow to involve in management of company . It means that Company have better decision maker or control over the company affair.
- Fixed Dividend Rate There is agreed dividend amount to be pay so it will help Company have better financial planning.
- Value of the shares Company remain control the value of share with the fixed Preference share value for certain period of time . Beside that, if the company redeem back the share , the value of share will be under control .
- Chance to expand business With the issue of Preference Share, Company will have more capital and freedom to expand their business on their own decision. And this will also save trouble to get loan approval from bank. Overall it help increase in Company’s asset and decrease the liabilities amount ( if loan from Bank).