Overview in General

Ordinary Shares

·     most common type of shares issued and widely regarded as equity investments with risk.

·     usually issued to active shareholders.

Preference Shares

·     it is more akin to loan capital and functions like a debt-like instrument.

·     can have a hybrid of characteristics of equity and debt.

·     commonly issued to non-active shareholders.

Constitution

Ordinary Shares

·     The Constitution can be silent on the issuance of ordinary shares, unless different “classes” of ordinary shares are to be issued.

Preference Shares

·     Issuance of preference shares must be allowed in the Constitution. The rights and terms of preference shares, such as their issuance, conversion, and redemption, need to be specifically set out in the Constitution.

Rights of Investors

Ordinary Shares

Has the rights:

·     to attend, participate, and vote at meetings;

·     to vote on any resolution of the company;

·     to an equal share in the company’s surplus assets distribution and dividends authorised by the company’s board of directors.

Preference Shares

Holders of preference shares have limited voting rights, particularly on matters that may affect their interests (e.g. variation to the rights, division or bonus issuance of shares, or winding up).

Voting Rights

Ordinary Shares

Shareholders are granted full voting rights, allowing them to participate in the company’s decision-making process.

Preference Shares

Preference shareholders are often not granted voting rights, unless in matters that affect them, as otherwise stated in the Constitution of the company.

Dividends

Ordinary Shares

Ordinary shareholders receive dividends after the payment to preference shareholders is made. The rate of dividend is to be determined by the board of directors.

Preference Shares

Preference shareholders receive dividends in priority to ordinary shareholders. The company’s Constitution may grant them a fixed amount or rate of dividend, subject to the availability of profit and the solvency of the company.

Accumulation

Ordinary Shares

Ordinary shares dividend cannot be accumulated from previous years.

Preference Shares

Preference shareholders may have a cumulative right to dividends if it is clearly stated in the company’s Constitution. Arrears of dividend will be paid in the subsequent year when profit is sufficient.

Repayment of Capital upon Winding-up of the Company

Ordinary Shares

Any remaining capital following the payment to creditors and preference shareholders is given to ordinary shareholders.

Preference Shares

Preference shareholders have the right to receive repayment of capital before ordinary shareholders but after the payment made to the company’s creditors.