Unleash the Full Potential of Your Business

PLUTUS

Company Secretary

Dividend Rights in Different Share Classes in Singapore | 2025 Guide

Dividends are one of the primary ways shareholders benefit from owning a stake in a company. But not all shares are created equal, and in Singapore, the rights to dividends vary depending on the class of shares a company issues.

For business owners, structuring the right share classes can help attract investors, retain control, and maintain compliance with the Companies Act. For investors, understanding dividend rights is crucial to knowing when and how much they can expect to be paid.

This guide explains the different dividend rights across share classes in Singapore, including legal requirements, priority of payments, and key considerations for both companies and investors.

Overview of Share Classes in Singapore

Under theSingapore Companies Act, private limited companies have wide flexibility in issuing different share classes. The rights of each class must be clearly spelled out in the company’s constitution or a shareholder agreement.

Common share classes in Singapore include:

Ordinary Shares: The most common type, typically carrying voting and dividend rights.

Preference Shares: Come with preferential dividend rights, often fixed, and paid before ordinary shareholders.

Redeemable Preference Shares: Can be bought back by the company at a future date.

Convertible Preference Shares: Can be converted into ordinary shares under agreed terms.

Non-Voting Shares: Holders are entitled to dividends but lack voting rights.

Deferred or Management Shares: Special classes often tied to founders or directors with unique dividend or voting rights.

Tip

Clearly document specific rights, especially dividend entitlements, in the constitution to avoid disputes.

Dividend Rights of Ordinary Shares in Singapore

Ordinary shares are the “default” class of equity in most Singapore companies.

Key Features:

Dividends are discretionary and declared by directors, subject to shareholder approval.

No guaranteed payouts – dividends depend on profitability and board decisions.

Ordinary shareholders are typically entitled to dividends after preference shareholders.

Investor Perspective:

Higher risk compared to preference shares.

Greater upside potential since dividends may grow with company profits.

Voting rights give shareholders influence over whether dividends are declared.

Dividend Rights of Preference Shares in Singapore

Preference shares are popular with investors because they provide priority dividend rights. They’re often structured as a middle ground between debt and equity.

Types of Preference Shares and Their Dividend Rights:

Redeemable Preference Shares

Provide fixed dividends until they are redeemed by the company.

Redemption requires the directors to file a solvency statement with ACRA to confirm the company can meet its obligations.

Favoured by companies for flexible capital structuring, as they can “retire” these shares when no longer needed.

Convertible Preference Shares

Entitle holders to dividends until conversion into ordinary shares.

Once converted, holders enjoy ordinary dividend rights and voting privileges.

Offer investors both stability (fixed dividends initially) and upside potential (conversion into equity).

Dividend Priority and Distribution Order

When dividends are declared, the order of payment is crucial.

Creditors and Debenture Holders: Paid first (if dividends are declared out of available profits).

Preference Shareholders: Receive their fixed dividend before ordinary shareholders. If cumulative, arrears must be settled first

Ordinary Shareholders: Receive dividends only after preference entitlements are satisfied.

In case of liquidation, the order is similar:

1

Creditors
2

Preference Shareholders
3

Ordinary shareholders

Legal & Regulatory Framework in Singapore

Dividend rights must comply with the Companies Act 1967 and be documented in the company’s constitution.

Key Legal Points:

Declaration of Dividends: Directors must ensure the company is solvent before declaring dividends.

Shareholder Agreements: Should explicitly define dividend rights for each class.

Redeemable Preference Shares: Redemption requires filing a solvency statement with ACRA.

Convertible Shares: Terms of conversion (timing, ratios, dividend cut-off) must be clearly stated to avoid disputes.

Practical Examples & Case Scenarios

Dividend rights must comply with the Companies Act 1967 and be documented in the company’s constitution.

Startup Example
A SaaS startup issues convertible preference shares to early investors. Investors receive a fixed 4% dividend until conversion into ordinary shares after Series A funding.

SME Example
An SME issues redeemable preference shares to raise working capital. Investors enjoy fixed dividends for three years before the company redeems the shares.

Investor Example
An angel investor opts for redeemable preference shares to receive predictable returns while limiting long-term exposure.

These examples show how dividend rights can be tailored to match business strategy and investor needs.

Key Considerations for Companies and Investors

For Companies

Use redeemable shares to raise temporary capital without diluting long-term ownership.

Offer convertible shares to investors to secure funding while maintaining control.

Document dividend and conversion terms clearly to avoid future conflicts.

For Investors

Check redemption conditions and conversion triggers.

Understand whether dividends stop upon conversion.

Assess whether fixed dividends align with your return expectations.

FAQs on Dividend Rights in Singapore Share Classes

Do all shareholders have dividend rights?

Yes, but the extent depends on the share class defined in the constitution.

Are preference dividends guaranteed?

No. They are only paid if the company declares dividends, though cumulative shares offer better protection.

What happens to dividends after convertible shares are converted?

They stop receiving fixed preference dividends and instead receive discretionary dividends as ordinary shareholders.

Who gets dividends first in Singapore?

Preference shareholders are prioritized over ordinary shareholders.

At A Glance: Dividend Rights Across Share Classes in Singapore

Structuring Dividend Rights Wisely

Dividend rights in Singapore depend heavily on the class of shares issued. Ordinary shareholders have discretionary and variable entitlements, while preference shareholders enjoy fixed or preferential dividends, often at the cost of voting power.

For companies, the right share structure can balance investor expectations with financial flexibility. For investors, understanding dividend rights ensures you know exactly when and how you’ll be rewarded.

Tip

Next Step: If you’re considering restructuring your company’s shares or investing in one, consult a corporate advisor to ensure dividend rights are structured in line with your goals and legal requirements.

Plutus’s Corporate Secretarial team specializes in company structuring, share issuance, and compliance with ACRA regulations. We simplify complex legal requirements, protect shareholder interests, and help businesses grow with confidence.

Contact us today to structure smarter, stronger share classes for your company.