Partly paid-up shares
Also written Partly paid shares · Partly paid-up share
Shares on which the company has not yet collected the full face value; the holder must pay the balance when called, and on default the shares — and the money already paid — can be forfeited.
In plain language
Most shares are fully paid up: the company collected the whole face value at the start, and the shareholder owes nothing more.
A company does not have to do it that way. It can collect part of the price with the application and call for the rest later. Until the calls are paid, the shares are partly paid up.
That unpaid balance is a real obligation. It is the one exception to the comfortable idea that a shareholder can never lose more than he put in — because what a shareholder's liability is limited to, in the workbook's words, is his contribution or any amount unpaid which he has agreed to pay. And if he does not pay the call on schedule, the company can forfeit the shares, keeping what he has already paid.
How it works
Collecting the calls. Accepting allotment or call money is one of the listed functions of a banker to an issue. SEBI has also opened additional channels for paying call money on partly paid specified securities through SCSBs and intermediaries: online ASBA through the SCSB's portal, physical ASBA at an SCSB branch, and an additional online mode through linked trading-demat-bank accounts offered by some brokers.
Forfeiture. Where the balance call money remains unpaid after sufficient reminders, the company may forfeit the shares. Forfeiture is one of the two ways the workbook gives for reducing share capital (the other is extinguishment on a buy-back). The reduction must be approved by a special resolution, alters the memorandum, and cannot be made while the company is in arrears on repaying deposits or the interest on them.
A separate ISIN. SEBI does not permit more than one ISIN for a company's equity shares unless the amount called and paid is not the same or the shares carry differential voting rights. Partly paid shares are exactly that case: they are not pari passu with fully paid shares, so they sit under their own ISIN.
No buy-back. All shares or other specified securities offered for buy-back must be fully paid-up.
Capital figures. Issued capital counts the full face value of the shares issued; paid-up capital counts only what has been collected.
A worked example
Illustrative figures. A company makes a rights issue of 2 crore shares of Rs 10 face value at par, payable Rs 2.50 on application and Rs 7.50 on a first and final call six months later.
Issued capital = 2 crore × Rs 10.00 = Rs 20 crore
Paid-up on allotment = 2 crore × Rs 2.50 = Rs 5 crore
Paid-up if every call is met = 2 crore × Rs 10.00 = Rs 20 crore
Until the call, these shares trade under a separate ISIN from the company's fully paid shares.
An investor holding 4,000 rights shares has paid 4,000 × Rs 2.50 = Rs 10,000. The call asks for 4,000 × Rs 7.50 = Rs 30,000. He can pay it through ASBA — the money is blocked and then debited — or ignore it.
He ignores it, and the reminders. The board forfeits the shares:
Money lost by the investor = Rs 10,000
Shares he still holds = 0
If, meanwhile, the company announces a tender-offer buy-back, he could not have tendered those 4,000 shares anyway: only fully paid-up shares can be bought back.
Why NISM asks about it
Chapter 2.4 (Equity Terminology) defines fully and partly paid-up shares and forfeiture; Chapter 2.6 treats forfeiture as a reduction of share capital; Chapter 7.7 requires bought-back securities to be fully paid; Chapter 10.3.1 lists the ASBA channels for paying call money; and Chapter 12.5 carries the one-ISIN exception. It is a small concept that turns up in five chapters, which is why it is worth learning once.
Common exam traps
- Forfeiture takes the amount already paid as well. The holder is not refunded the application money.
- Limited liability includes the unpaid amount the shareholder agreed to pay. It does not cap his liability at what he has paid so far.
- Partly paid shares get a separate ISIN — unequal amounts called and paid is one of only two exceptions to the one-ISIN rule, the other being differential voting rights.
- Only fully paid-up securities can be bought back.
- Reduction of capital by forfeiture needs a special resolution, and is barred while the company is in arrears on deposits or interest on them.
- Issued capital does not fall when a call goes unpaid; paid-up capital simply stays lower until the call is met or the shares are forfeited.
Where this is taught
Free preparation for NISM Series II-ARelated terms
- ASBAThe mandatory payment mechanism for public and rights issues, in which your bank blocks the application money in your own account and debits it only if you actually get an allotment.
- Rights issueAn offer of new shares at a set price to existing shareholders in a fixed ratio to what they already hold, so that their proportionate stake is not diluted when the company raises fresh capital.
- Issued capitalThe part of a company's authorised capital that has actually been issued to investors — promoters, the public or specified investors — counted at face value, whatever price the shares were sold at.
- Limited liabilityThe rule that an equity shareholder's exposure to a company's debts is capped at what they invested — creditors who cannot recover their dues from the company cannot come after the shareholder personally.
- Paid-up capitalThe part of the issued capital that shareholders have actually paid for — issued capital less the calls still outstanding on partly paid shares.
- One ISIN ruleSEBI does not allow a company more than one ISIN for its equity shares unless the amount called and paid differs or the shares carry differential voting rights — all shares under an ISIN must be pari passu.