Partly Paid Shares Explained: The Complete Guide to Calls & Shareholder Obligations

The world of corporate finance and share capital can often feel like a maze of technical jargon and rigid legal frameworks. Among the various types of equity structures, partly paid shares represent a unique hybrid of immediate ownership and future financial commitment.

Whether you are a company director looking to raise capital from existing holdings or a shareholder trying to understand your liability, navigating the "call on shares" process is essential. In this guide, we break down everything you need to know about partly paid shares, the step-by-step procedure for collecting unpaid amounts, and the administrative duties that follow.

What Are Partly Paid Shares?

When a company issues shares, they are typically "fully paid," meaning the shareholder has paid the entire nominal value (and any premium) upfront. However, companies—particularly Public Limited Companies (PLCs)—may issue shares where only a fraction of the value is paid at the time of allotment.

The remaining balance is a debt owed by the shareholder to the company. This balance can be "called up" by the directors at any time, provided they follow the procedures outlined in the company’s Articles of Association.

Why Issue Partly Paid Shares?

Flexibility for Investors: It allows shareholders to gain an equity stake without an immediate large cash outlay.

Staged Capital Inflow: The company can secure commitments for future funding without needing the cash immediately for operations.

Security for Creditors: Unpaid share capital acts as a reserve that creditors can rely on if the company enters liquidation.

The Step-by-Step Process of Making a "Call" on Shares

Making a call on shares is a formal legal procedure. If handled incorrectly, the company may find it difficult to enforce payment or forfeit the shares of defaulting members.

1. The Directors' Resolution

The process begins in the boardroom. The directors must meet and formally resolve to make a call on the unpaid or partly paid shares. This is not a casual decision; it must be backed by a clear business need, such as funding a new project, paying down debt, or meeting statutory capital requirements.

Key elements of the resolution:

The Amount: Exactly how much is being called per share?

The Due Date: A specific deadline for the funds to reach the company’s account.

The Justification: Documentation of why the capital is required at this specific time.

2. Issuing the Notice of Call

Once the resolution is passed, the company must notify the shareholders. This notice acts as a formal demand for payment.

Who receives the notice?

Usually, the notice is sent to the individual or entity registered as the holder of the shares at the time of the call. However, share transfers can complicate this. If a partly paid share has been sold, the current owner (the transferee) is typically liable for all future calls. It is vital to check the share register to ensure the demand is sent to the correct legal owner.

3. Monitoring Payments and Managing Arrears

When the due date arrives, the company’s secretary or financial officer must reconcile received funds against the share register.

If a shareholder fails to pay, the company must act swiftly but professionally. This usually involves:

Initial Reminders: A polite follow-up sent a week or two after the deadline.

Formal Demand Letters: These should explicitly state that:

Payment is required immediately.

Interest will be charged on the outstanding balance (as permitted by the Articles).

The shareholder risks forfeiture of their shares and loss of any previously paid fees if the debt remains unpaid.

4. Updating Membership Records and Certificates

Once the cash is in the bank, the administrative work begins. You cannot simply leave your records as they were; they must reflect the new "paid-up" status of the capital.

The Share Register: Update the register of members to show the specific amount now paid on each share.

Share Certificates: Old certificates showing the shares as "partly paid" should be cancelled. New certificates should be issued, clearly stating the updated amount paid-up (e.g., "Fully Paid" or "75% Paid").

Registration of Assets: If the shares are tied to specific company assets or specific classes, ensure the internal asset register reflects these changes.

5. Notifying Companies House

While the internal records are updated immediately, Companies House must also be informed of the change in the company's capital structure.

Typically, these changes are reflected in the Confirmation Statement (formerly the Annual Return). However, many companies choose to file an early confirmation statement after a major call on shares. This ensures that the public record—used by banks, creditors, and potential investors—accurately reflects that the company has successfully raised and collected its capital.

Special Considerations for Public Limited Companies (PLCs)

PLCs face stricter regulations regarding share capital than private limited companies. For instance, a PLC cannot commence business unless its allotted share capital has a nominal value of at least £50,000, and each share must be paid up to at least one-quarter of its nominal value plus the full amount of any premium.

When a PLC makes a call, it often involves a larger volume of shareholders, requiring more robust communication strategies and potentially the involvement of receiving banks to handle the influx of payments.

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What Professionals Often Want to Know

1. Can a shareholder refuse to pay a call on shares?

No. By holding partly paid shares, the shareholder has entered into a contract to pay the balance when called. Failure to pay can lead to legal action or forfeiture of the shares.

2. What happens if I sell my partly paid shares?

In most cases, the liability to pay future calls transfers to the new owner. However, the company's Articles may sometimes allow the company to pursue the previous owner if the current owner defaults within a certain timeframe.

3. Is there a limit to how many calls a company can make?

This depends entirely on the Articles of Association and the terms set when the shares were first issued.

4. Can interest be charged on late payments?

Yes, most company Articles allow for interest to be charged from the due date until the actual date of payment.

5. What is "forfeiture" of shares?

Forfeiture is a process where the company takes back the shares because the holder failed to pay a call. The shareholder loses their rights and any money they previously paid on those shares.

6. Do partly paid shares have voting rights?

Usually, yes. Unless the Articles state otherwise, partly paid shares carry the same voting rights as fully paid shares, though dividends are often paid pro-rata based on the amount paid up.

7. How do I know if my shares are partly paid?

This information will be on your share certificate and the company’s register of members.

8. Can a company cancel the unpaid portion of shares?

This is known as a reduction of capital and typically requires a special resolution and, in some cases, court approval.

9. Are partly paid shares common in private companies?

They are less common than in PLCs but are sometimes used in startups to incentivize founders or early investors.

10. What form do I file at Companies House after a call?

While not mandatory to file immediately, a Form SH01 is used for new allotments. For existing shares being paid up, the change is updated in the next Confirmation Statement (CS01).

11. Can the company make a call if it is insolvent?

Yes. In fact, liquidators often make calls on partly paid shares to raise funds to pay off creditors.

12. Is the "call" amount taxable?

The payment itself is a capital contribution, not an expense. However, it increases your "base cost" for Capital Gains Tax purposes.

13. What if a shareholder dies before a call is made?

The liability usually passes to the shareholder’s estate.

14. Can a call be rescinded?

Directors can usually revoke or postpone a call by passing a subsequent board resolution before the due date.

15. Why would a company choose not to call the full amount?

The company might not currently need the capital, or they may want to

maintain the "uncalled" amount as a form of insurance for creditors.

Disclaimer: The information provided in this article is for general informational and research purposes only. Company details, features, services, and market positions may change over time. Readers are advised to visit official company websites and conduct independent research before making any business decisions or purchasing services.