A shareholder whose shares are held through a nominee company or custodian bank (i.e. indirect investors or beneficial shareholders) will not have any rights to vote directly in a general meeting of the company. This is because only registered “members” are entitled to attend and vote. Shares held through a nominee company or custodian bank will be registered in such nominee or custodian bank’s name. While these registered “members” are effectively bare trustees, holding shares for the collective benefit of the beneficial shareholders, a company will only recognise the rights of the persons registered as holders of the shares to attend and to vote at a general meeting. Statutory exception is made for shareholders who deposit their shares with The Central Depository (Private) Limited (“CDP”).

Fund managers and institutional investors are some common examples of beneficial shareholders whose shares are commonly kept in nominee accounts. Presently, they can only exercise their limited voting rights if they fall within the specified categories stated below:

  1. Appointment of beneficial shareholder as proxy

    Singapore law currently provides that a nominee company as the registered "member" of a company can only appoint a maximum of 2 proxies to attend and vote at a general meeting (unless the articles of association provide otherwise). This means that unless a beneficial shareholder is appointed as 1 of these 2 proxies, he is effectively prevented from attending and voting at shareholders' meetings due to the limit in the number of proxies.

    Even if a company's articles allow for the appointment of multiple proxies, most of these proxies cannot vote on a show of hands because each registered shareholder is only entitled to one vote on a show of hands. Accordingly, such nominee companies will face the difficulty of deciding which proxy, out of the multiple proxies appointed, will be entitled to exercise their voting rights on a show of hands.

    The Code of Corporate Governance 2012 encourages listed companies to amend their articles to remove the limit on the number of proxies that may be appointed by nominee companies. Listed companies will have to comply or explain departures from this principle of the Code. At present, however, few companies have moved to amend their articles to implement a multiple proxies regime.

  2. Beneficial shareholders notifying nominee companies how they wish to vote

    Some nominee companies have introduced a mechanism where a beneficial shareholder can notify them how he wishes to vote. Where the nominee company receives conflicting instructions from its various clients, the nominee company will vote so many shares "for" a resolution and so many shares "against", by submitting proxy forms appointing the chairperson of the meeting as proxy to vote accordingly.

    However, some resolutions require not simply a majority of votes but also a majority in number of the shareholders present and voting (e.g. in a resolution to approve a scheme of arrangement). The above mechanism does not increase the voting rights of beneficial shareholders as the nominee company will still only count as one for the purposes of the number of shareholders.

    Where voting is by a show of hands, and not a poll, the same qualification above that the nominee company will be limited to one vote will apply.

Reforms

It is noteworthy that reforms have been set in place and endorsed by the Ministry of Finance. In particular, one of the accepted recommendations for the reform of our Companies Act is to allow, unless otherwise prohibited by a company's articles, registered "members" falling within the following two categories to appoint more than 2 proxies to vote at general meetings (provided that each proxy is appointed to exercise the rights attached to a different share or shares and the number of shares and class of shares shall be specified):

  1. any banking corporation licensed under the Banking Act or wholly-owned subsidiary of such a banking corporation, whose business includes the provision of nominee services and who holds shares in that capacity; and
  2. any person holding a capital markets services licence to provide custodial services for securities under the Securities and Futures Act.

In addition, our Companies Act will be amended to allow the proposed multiple proxies to each be given the right to vote on a show of hands in a shareholders' meeting.

The Ministry of Finance intends to table the Bill in Parliament to implement these amendments by the end of 2013. Accordingly, once the changes are set in place, investors whose shares are held in the aforementioned broker nominee accounts will then be given the ability to vote in general meetings, whether by poll or on a show of hands.