Rights and equitable treatment of shareholders

Shareholder powers

What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?

The CA states that unless provided for otherwise by the constitution of a company, a company may appoint a director by way of ordinary resolution (simple majority of over 50 per cent of the votes cast at a general meeting). The constitution of a company will typically provide that directors are to be elected or removed by shareholders passing an ordinary resolution.

In the case of public companies, the CA does not permit the appointment of two or more persons as directors by a single resolution, unless it is unanimously agreed to by the meeting that such a resolution may be moved. This is to allow members the opportunity to accept or reject each nominated director. The constitution of private companies may provide that certain shareholders have the power to appoint directors; however, such an article will not be enforceable by a person who is not a member of the company unless there is a separate contract outside the constitution embodying that right.

Shareholders of a public company may, by way of an ordinary resolution passed at a general meeting, remove a director before the expiry of his or her term of office, notwithstanding anything contained in the constitution of the public company or in any agreement between the public company and the director. However, where the director was appointed to represent the interests of any particular class of shareholders or debenture holders, the resolution to remove him or her shall not take effect until a successor has been appointed. By contrast, a director of a private company may only be removed from office in accordance with its constitution. If the constitution does not provide for the removal of directors, directors cannot be removed before the expiry of their term of office unless the constitution is suitably amended. The constitution of a private company may be drafted to contain provisions to entrench certain directors.

Shareholders may use their power to call for or requisition an extraordinary general meeting and require resolutions to be put for the purpose of appointing or removing directors, or amending the constitution to compel the board to pursue a particular course of action (see question 7).

Shareholder decisions

What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?

The following matters require shareholders’ approval under the CA:

  • amendments to the constitution of the company;
  • alteration of share capital;
  • issuance of shares;
  • reduction of share capital;
  • disposal of the whole or substantially the whole of the company’s undertaking or property;
  • provision or improvement of emoluments to directors in respect of their office; and
  • appointment of auditors.

In addition, the Rules require listed companies to obtain shareholders’ approval for, inter alia: transactions with interested persons (as defined in the Rules), and acquisitions and disposals that exceed certain financial thresholds.

Furthermore, pursuant to shareholder agreements or amendments to the constitution, additional matters may require shareholders’ approval. The CA does not require any matter to be subject to a non-binding shareholder vote. However, shareholders may call for or requisition an extraordinary general meeting and require resolutions to be passed (see questions 3 and 6).

Disproportionate voting rights

To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?

The CA allows for the creation of different classes of shares, so that the respective shareholders are given varying rights to the company. The rights attached to the classes of shares would generally be contained in the constitution of the company. There may be shares that carry non-voting rights, additional voting rights, or restricted voting rights (ie, a share whereby there is only a right to vote in certain circumstances). For instance, the constitution may provide that a member shall not be entitled to vote unless all calls or other sums personally payable by him or her in respect of the company have been paid.

With effect from 2016, the Companies Act was amended to remove the one-share-one-vote restriction in public companies. The SGX-ST has also indicated that it would allow companies with dual-class share structures to list, although this may only be restricted to the mainboard.

Shareholders’ meetings and voting

Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?

The general rule is that every member who holds ordinary shares (excluding treasury shares) shall have a right to attend any general meeting of the company and to speak and vote on any resolution before the meeting. However, the constitution may provide that a member shall not be entitled to vote unless all calls or other sums personally payable by him or her in respect of the company have been paid. A shareholder may appoint a proxy (who need not be a shareholder) to vote on his or her behalf.

Only shareholders of private companies and unlisted public companies may pass resolutions by written means; however, these must strictly comply with the requirements under sections 184B and 184F of the CA. Furthermore, passing of written resolutions is not applicable to resolutions involving the removal of directors or dispensation of the requirement to hold an Annual General Meeting. Whether a company is able to hold a virtual meeting of shareholders depends on its constitution, which may provide that the meetings can be by video or teleconference.

Shareholders and the board

Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?

Generally, shareholders holding not less than 10 per cent of the company’s paid-up share capital may serve a requisition on the directors requiring them to call an extraordinary general meeting. Two or more shareholders holding not less than 10 per cent of the company’s issued share capital (excluding treasury shares) may themselves call a meeting of the company.

Shareholders of the company, who hold at least five per cent of the total voting rights or at least 100 shareholders holding shares on which there has been an average sum, per shareholder, of not less than S$500, can then requisition the company to circulate notice of the proposed resolution (which may include director nominations) and a statement containing further details in respect of the proposed resolution. This must be done at the expense of the requisitionists (unless the company otherwise resolves). The copy of the requisition sent must contain signatures of all the requisitionists, must be deposited at the registered office of the company and must be followed by a sum of money reasonably sufficient to meet the company’s expenses in giving effect to the resolution.

Controlling shareholders’ duties

Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?

Controlling shareholders do not generally owe duties to the company or to non-controlling shareholders. However, a shareholder may apply to court for relief where the affairs of a company are being conducted in a manner that is oppressive towards him or her, disregards his or her interests, discriminates unfairly against him or her or is otherwise prejudicial to him or her under section 216 of the CA. A successful application under section 216 of the CA gives the court the discretion to make a wide variety of orders, including but not limited to, directing or prohibiting acts and varying transactions.

Where the controlling shareholders also sit on the board of the company, they will then owe directors duties to the company. Other shareholders may then step into the shoes of a company, and bring enforcement action through either a common law derivative action or statutory derivative action (not available for listed companies).

Shareholder responsibility

Can shareholders ever be held responsible for the acts or omissions of the company?

Shareholders are not generally held responsible for the acts or omissions of the company, except in exceptional circumstances. Shareholders of a company limited by shares are generally not liable for its debts except to the extent that they are liable as contributories on the winding-up of the company, such liability being limited to any unpaid amount on shares held.