A partly paid share is a
share in a company which has only partial been paid compared to the
par value
Par value, in finance and accounting, means stated value or face value. From this come the expressions at par (at the par value), over par (over par value) and under par (under par value).
Bonds
A bond selling at par is priced at 100% of face va ...
, with the understanding that as the company requires more funds, calls will be made from time to time to request more money until the shares are fully paid, when no further calls can be made. The amounts may be specified in the prospectus or unspecified and the shareholder is liable when a call is made by the company until the shares are fully paid.
History
In the early 20th century partly paid shares were sometimes issued by companies such as banks and insurance companies as they could call on their shareholders for further funds as necessary. This was good for the financial institution as they could quickly increase their capital when required but was unpopular with
shareholder
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal ow ...
s as they had an unknown liability that could be called upon at any time and for this reason the practice largely died out.
The practice was revised during the 1980s privatisations to attract more small shareholders. Shareholders in these
IPO
An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...
s make an initial payment, and then one or more subsequent pre-specified payments on specific dates.
Calls on shares
Calls on partly paid shares may be made in accordance with a schedule of calls set out in the company's original
prospectus or it may be made at the discretion of the directors.
When a call is made, each shareholder affected by the call becomes a debtor of the company, until each debt has been satisfied. The usual rules of debt collections apply to such debts. The obligation to pay a call flows with the share, so that it falls on the person who is the owner of the relevant shares at the time a call is made. The obligation falls on the owner at the time of a call, who may have disposed of the shares by the time payment is due, so that the new owner is free of the obligation to pay the call.
For a
limited liability
Limited liability is a legal status in which a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a corporation, company or partnership. If a company that provides limited liability to it ...
company, the legal right of the company to make calls and the obligation to pay them ceases when shares become fully paid. In Australia, a mining exploration company may be formed as a
no liability
A no-liability company in Australia (suffix NL) is a company which, under the Corporations Act 2001 (Cth), must have as its stated objects that it is solely a mining company and that it is not entitled to calls on the unpaid issue price of shares ...
company, which is not able to make calls on shares, even on partly paid shares.
See also
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Allen v Gold Reefs of West Africa Ltd
''Allen v Gold Reefs of West Africa Ltd'' 9001 Ch 656 is a UK company law case concerning alteration of a company's articles of association. It held that alterations could not be interfered with by the court unless the change that had been made w ...
*
Convertible security A convertible security is a financial instrument whose holder has the right to convert it into another security of the same issuer. Most convertible securities are convertible bonds or preferred stocks that pay regular interest and can be converted ...
*
Issued shares In finance and law, issued shares are the shares of a corporation which have been allocated (allotted) and are subsequently held by shareholders. The act of creating new issued shares is called ''issuance''. Allotment is simply the transfer of sha ...
*
Share class
In finance, a share class or share classification are different types of shares in company share capital that have different levels of voting rights. For example, a company might create two classes of shares class A share and a class B share where ...
References
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Equity securities