Partly paid-up Shares

1. In order to understand the topic of partly paid shares, we need to understand the base of its formation or rather from where it is derived.

2. As per section 2(20) of the Companies Act, 2013, A Company is defined as “an incorporated association which is an artificial person, having a separate legal entity, with perpetual succession, a common seal, a common capital compromised of transferable shares and limited liability.” Shares are mainly derived from the share capital of a company. Share capital is that capital which comes through the issued, subscribed and paid-up shares.

3. There are various types of share capital in a company, for example, Authorized, Issued, Unissued, etc. Of these, issued capital contains a lot of partly paid shares. There are three types of shares which form a part of the Issued Capital.

– Equity Shares with differential voting rights

4. They have a value which they hold (Face/Nominal Value) and on payment of that value by a person, the individual becomes a shareholder in the company. Coming to the concept of partly paid shares, it can be explained better with the underlying example:

Ex: A company issues 10000 Equity shares at INR 10 each wherein, INR 5 is called as the application money, INR 2.5 is to be the 1 st call and the balance INR 2.5 as the 2 nd call. In the above example when the shareholder pays INR 5 as the application money and remaining on a call. At this very situation, the shares are partly paid-up. The balance amount when paid will convert partly paid-up shares to fully paid shares.

6. As we understood the basis of its formation. There are other aspects too which are co-related to such security. Such aspects being their types, methods through which they can be allotted and the regulations/compliances which are to be followed in order to issue/allot partly paid securities.

II) Type of Partly Paid Securities

As seen earlier, Shares were the only kind which we discussed for part payment, But there are other securities too which can be partly paid. The below table states the types of such securities which can be partly paid with their differences.

With the types of securities which can be allotted through Part-payment; it is necessary that we need to understand various methods/modes too for such an allotment.

III) Methods/Modes of Allotment

The table below states such modes/methods of allotment as well as point out the regulation and laws which are to be taken into consideration while issuing partly paid securities.

IV) Compliances for Allotment

1. If a company decides to come out with such an allotment of securities, there are compliances which are to be adhered to. In case of any default on the part of the company, it will attract a penalty as well as cancellation of the issue.

2. In regard to such an issue, it is mandatory for a company to follow the recent guidelines prescribed by [ii] SEBI through their recent discussion paper. The gist of the paper is mentioned below, and the table gives information about investments are done by Foreign Individuals or Entities in companies situated in India (domestic) i.e. Public (listed/Unlisted) or Private Companies.

There is a Cap on the above stated table on the basis of their issue size.

V) Myths around Issue of Partly Paid Securities.

As we went through the whole process of allotment as well as compliances there are certain myths too which are attached to partly paid shares.

VI) Conclusion

1. In regard to the types, allotment, compliances and various myths that are related to partly paid-up shares; they have their own set of pros and cons. While they enjoy the same rights as those of fully paid ones i.e. Voting, Dividend (appropriately) and during winding up they can demand their equal share but, they have their own Cons too.

2. Issue of bonus shares is restricted because of such securities as well there are restriction as we mentioned above on investments made by foreign entities need to be fully paid within 12 months of the allotment.

3. Looking on the brighter side, the company can develop its future plans in a much organized manner. Since it is on the discretion of the Directors/Investors for calling monies on the unpaid/balance number of shares for Indian Investors. The company can plan their capital structure accordingly. Future projects and plans can be managed in a systematic manner, as these securities pay as per their maturity/boards discretion and any arrears can lead to forfeiture (Untaxed Profits) or reissue.

[v] Definition u/s 63 of the Companies Act, 2013