A Singapore company can issue shares in exchange for something other than cash, such as services, intellectual property, equipment, a business or the cancellation of a debt owed by the company. The corporate steps are the same as a cash issue: shareholder approval for the directors to issue shares, a board resolution, and a return of allotment lodged with ACRA, marked as payable otherwise than in cash. The difference is evidence. The company needs a written contract describing what it receives, a defensible value for it, and the correct tax and accounting treatment for both sides.
Raffles Corporate Services works with a panel of experienced Singapore law firms who offer cost-effective and efficient legal service and advice. This article is general information only and is not legal advice.
This guide is for directors, founders and shareholders of Singapore private companies planning to issue shares to a co-founder, consultant, investor or lender in return for something other than money.
What counts as non-cash consideration?
“Consideration” is what the company receives in return for the shares. ACRA’s allotment guidance recognises that shares may be allotted for cash or for other consideration, for example under a written or verbal contract, under a provision in the constitution, or in exchange for dividends owed to a shareholder. Common situations in private companies include:
- Services: a co-founder, adviser or key hire receives shares for work done or to be done.
- Intellectual property: a founder assigns software code, a trade mark, designs or know-how to the company.
- Assets or a business: equipment, stock, a sole proprietorship’s business or property is transferred to the company.
- Shares in another company: a share swap, often used to put a holding company on top of an existing company.
- Conversion of a debt: a director, shareholder or supplier who has lent money to the company, or is owed money by it, takes shares instead of repayment.
If you are new to share issues generally, start with our overview of how a Singapore company issues new shares. This article focuses on what changes when no money is paid.
Who must approve a non-cash share issue?
Under section 161 of the Companies Act 1967, directors may only issue shares with the prior approval of the company in general meeting. In practice this is an ordinary resolution of shareholders, or a general mandate already in place. ACRA’s Bizfile process asks whether the section 161 resolution has been filed, and if not, asks for it during the allotment filing.
Before the resolution, check:
- The constitution: some constitutions give existing shareholders a right of first refusal on new shares (pre-emption rights) or restrict share classes.
- Any shareholders’ agreement: investors often hold veto rights over new issues and a say on valuation.
- Conflicts of interest: where the person receiving shares is a director, that director must declare the interest, and the board should be able to show the terms were fair to the company.
How should the company value what it receives?
Singapore shares have no par value, so there is no fixed minimum price. The board sets the issue price and decides how many shares the non-cash consideration is worth. That decision is part of the directors’ duty to act honestly and in the company’s interests. Issuing shares for an overvalued asset dilutes the other shareholders and can be challenged later, particularly by minority shareholders or, if the company fails, by a liquidator.
Practical valuation approaches include:
- Services: the market rate that would have been paid in cash, supported by a scope of work, time records or comparable quotes.
- IP and intangible assets: an independent valuation where the amount is significant, or at least documented cost, revenue forecasts and the basis chosen.
- Equipment and stock: invoices, depreciated cost or a third-party valuation.
- A business: net assets taken over, adjusted for goodwill if justified.
- A debt: the confirmed amount owing, reconciled to the ledger and supporting documents.
Our guide to fair value measurement under FRS 113 explains how accountants grade the reliability of different valuation inputs.
The steps for a non-cash share issue
- Agree the commercial terms. What is being given, at what value, for how many shares, and of which class.
- Prepare the contract. This could be a subscription agreement for shares in exchange for services, an IP assignment, an asset or business transfer agreement, a share swap agreement or a debt capitalisation agreement. It should state that the shares are issued as fully paid in consideration of the asset, services or debt released.
- Complete any transfer formalities for the asset. For example, a written IP assignment, a transfer of title for equipment, or a share transfer form for shares in another company.
- Obtain shareholder approval under section 161, unless a valid general mandate already covers the issue, and waive or comply with any pre-emption rights.
- Pass a board resolution allotting the shares, recording the consideration, its value, the amount treated as paid on each share and the allotment date.
- Lodge the return of allotment in Bizfile. Select that the shares are payable “all otherwise than in cash” (or partly in cash) and specify the allotment method. ACRA lists contracts or a court order as supporting documents for non-cash allotments.
- Update the company’s records. Issue the share certificate, update the register of registrable controllers if anyone crosses a threshold, and record the transaction in the accounts.
For a private company, the allotment does not take effect until ACRA updates the electronic register of members on filing, and ACRA does not generally allow the allotment date to be backdated. A public company must lodge its return within 14 days of the allotment. Our article on filing the return of allotment walks through the Bizfile screens.
Tax and accounting by type of consideration
| Consideration | Key document | Tax points | Accounting in the company |
|---|---|---|---|
| Services by an employee or director | Share award or subscription letter | Generally taxable employment income for the recipient, reported by the employer | Share-based payment expense, credit to share capital |
| Services by an outside consultant | Consultancy and subscription agreement | Generally income of the consultant’s business; GST may apply if the consultant is GST-registered | Expense or asset at fair value of services received |
| IP or equipment | Assignment or asset transfer agreement | Possible tax for the transferor; capital allowance or writing-down claims for the company depend on the asset | Asset at fair value, credit to share capital |
| Shares in another company | Share swap agreement and share transfer form | Stamp duty on the transfer of the target shares | Investment at fair value, credit to share capital |
| Debt owed by the company | Debt capitalisation agreement | Consider whether any gain on settling the debt is taxable | Loan liability removed, credit to share capital |
Shares for services: income tax for the recipient
Where an employee or director receives shares because of their employment, IRAS generally treats the value of the shares, less anything they paid, as taxable employment income. IRAS’s e-Tax guide on employee share plans explains the timing (generally when the shares are granted, or when they vest if there is a vesting period) and the value used: open market value where available, with net asset value as a fallback where market value cannot be determined. The company should report the gain in the employee’s employment income records. Our article on the tax deduction for employee share plans settled with new shares covers the company’s side.
An outside consultant who is paid in shares has received payment for their services, and the value is generally part of their business income, just as cash fees would be.
Assets: stamp duty and GST
Issuing new shares is not a transfer of existing shares. Stamp duty becomes relevant when the asset coming into the company is itself dutiable: a transfer of shares in another company (as in a share swap) or immovable property such as an office unit. IRAS’s stamp duty rates apply to those transfer documents, and reliefs may be available for qualifying restructurings. If the person transferring assets is GST-registered, the transfer may be a taxable supply, unless it is part of a transfer of a business as a going concern that meets IRAS’s conditions.
Accounting entries
Under the Singapore Financial Reporting Standard on share-based payment (FRS 102, or SFRS(I) 2 for companies on that framework), goods or services received in exchange for the company’s own shares are generally measured at the fair value of what is received. If that cannot be measured reliably, the fair value of the shares issued is used. The entry is typically a debit to the asset or expense and a credit to share capital.
For a conversion of a debt, the interpretation on extinguishing financial liabilities with equity instruments (INT FRS 119, or SFRS(I) INT 19) generally measures the shares at fair value, with any difference from the loan’s carrying amount going to profit or loss. That interpretation does not apply in some cases, including where the lender is already a shareholder acting in that capacity, so agree the treatment with your accountant or auditor before the year-end.
Converting a director’s or shareholder’s loan into shares
Debt-to-equity conversions are common in owner-managed companies, where a director has funded the business through a loan account for years. Converting the loan into shares strengthens the balance sheet, which can help with bank facilities, tender requirements or work pass applications that look at paid-up capital. It also means the lender gives up a right to repayment and becomes a shareholder, ranking behind creditors if the company is wound up.
Before converting:
- Reconcile the loan balance to bank records and supporting documents. A figure that cannot be supported will be questioned by auditors, IRAS or other shareholders. Our article on proving a director loan or capital injection covers the evidence.
- Treat other shareholders fairly. If only one shareholder’s loan is converted, the others are diluted. Agree the price per share openly or offer the same right to all lenders.
- Check solvency. If the company is in financial difficulty, think about how the conversion will look to other creditors.
- Record the conversion clearly in a written agreement and resolutions, and lodge the allotment as otherwise than in cash.
Where the arrangement is agreed at the outset with an investor, a convertible note may be a better fit. See our guide to closing a convertible note or SAFE round.
Document checklist
- Contract for the consideration (services, assignment, asset transfer, share swap or debt capitalisation agreement).
- Valuation report or valuation working, with the basis explained.
- Section 161 shareholder approval or general mandate.
- Pre-emption waivers or consents under the constitution or shareholders’ agreement.
- Directors’ declaration of interest, where a director receives shares.
- Board resolution allotting the shares.
- Bizfile return of allotment acknowledgement and updated electronic register of members.
- Share certificate and updated register of registrable controllers.
- Stamp duty certificate where a dutiable asset was transferred.
- Tax records for the recipient where shares were issued for employment services.
Example: a technical co-founder and a founder’s loan
Example (hypothetical): Bayfront Analytics Pte. Ltd. is owned by Mei, its managing director, who has lent the company S$150,000 over three years. Raj, a freelance software developer who is not an employee, wrote the company’s core code and still owns it personally.
The company agrees two non-cash issues. First, Raj assigns the code to the company under a written IP assignment, and the company issues him shares valued on an independent valuation. Because Raj is not an employee, the value is treated as consideration for the IP. Second, Mei’s loan is reconciled to the bank records, confirmed at S$150,000 and capitalised into shares at the same price per share used for Raj.
Mei, as sole shareholder, passes a section 161 resolution, the board allots both tranches, and the corporate secretary lodges the returns of allotment as otherwise than in cash, keeping the assignment, valuation and capitalisation agreement on file. The accountant records the software as an intangible asset and removes the director’s loan from liabilities.
Frequently asked questions
Can shares be issued for services that will be performed in the future?
It is possible, but risky. If the person leaves before performing, the company has issued shares for nothing. Many companies instead issue shares subject to vesting or buy-back terms, or use an employee share plan.
Does ACRA check the valuation?
ACRA records the allotment and may ask for the supporting contract, but it does not approve the value. Responsibility for a fair price sits with the directors, and the evidence matters if shareholders, auditors or IRAS later question it.
Is converting a director’s loan into shares a capital injection?
It increases share capital, but no new money comes in. The cash arrived earlier as a loan. The conversion changes how that funding is classified, from a liability to equity.
Do we need a lawyer for an IP assignment?
For valuable IP, it is sensible to have the assignment drafted or reviewed by a lawyer, so that ownership actually passes and any registrations can be updated. Raffles Corporate Services can coordinate this with advisers from associated law firms.
Can a shareholder’s unpaid dividend be paid in shares?
Yes. ACRA recognises shares issued in exchange for dividends owed as a form of non-cash allotment. The dividend must first be properly declared, and the share issue then follows the same approval and filing steps.
Need help issuing shares for non-cash consideration?
Raffles Corporate Services can review your constitution and shareholders’ agreement, draft the section 161 and board resolutions, coordinate the contract and valuation, lodge the return of allotment with ACRA, update your registers and advise on the accounting and tax reporting. Email [email protected] or WhatsApp +65 8501 7133. This article is general information, not legal or tax advice.
Willie Tan, Raffles Corporate Services