The market value of the shares may or may not be identical to the par value. If the nominal value is less than the market value, the difference between the two is called a share premium.
If a company issues new shares after its formation, or a current member wants to sell their shares, the present company value needs to be ascertained in order to determine the market value. Hence, the premium that new shareholders must pay. For instance:
Let’s say a company issues ten shares in total at the time of its registration.
These shares will have a par value of £1 per share.
365 days later, if the company is valued at £60,000, the market value of each share will be £6,000.
If the company wants to add new members by selling current shares or granting new ones, the amount payable by the new shareholder can be based on the present market rate of £6,000 per share.
If a share is transferred or distributed at £6,000, the nominal value will still be £1, however, it will have a share premium of £5,999.
The model articles of your company will determine when you must pay for the shares. Based on the clauses included in the members’ agreement or articles, members may have to pay for shares in the instances below:
Many companies in the limited sector are formed based on model articles. The articles state that, except in case of shares issued at the establishment, new shares need to be entirely paid as soon as they are issued.
In some situations, shareholders might be exempted from paying for the shares including:
In the situations above, there may be tax implications for both the shareholders as well as the company.
In addition, if the model articles of a company do not demand instant payment on allocation or no payment calls are ever made, members are allowed to pay for the shares at a later date.
If a small amount of the nominal price (along with premium) of the shares is paid, they are known as ‘partly-paid’ shares. If a member receives company shares but is unable to pay the essential nominal amount (along with premium), the shares will be deemed as ‘unpaid’.
Shareholders having partly-paid or unpaid shares stay accountable to the corporation for the sum that is still unpaid. Certain companies will not be able to issue either partly-paid or unpaid shares, or both; the model articles of the company will whether this is allowable. For instance, companies following model articles guidelines that are limited by shares will not be able to issue shares except when they’re completely paid for (nonetheless they will be able to do so for shares distributed at the time of establishment).
The company is free to ‘call’ its shares in the future. This is when the company director(s) send a call notification to the members stipulating the need to pay the corporation a set amount of cash. This can be some or the entire unpaid amount, subject to the shares they own.
Within the call notification, members can also find their call payment date. If a shareholder is unable to pay within the given time, company directors may send him/her a notice.
Consequently, a ‘forfeiture notification’ can be sent to company shareholders in the event payment stays outstanding. Plus, interest can also be incurred for the time the dues remain unpaid. If a person is unable to pay following a forfeiture notification, he/she is likely to lose entitlement to their shares.
Company directors must consult the model articles of the company in addition to passing a resolution during the meeting of board directors before issuing a call notification to shareholders. The resolution must include the call amount details as well as the due date of payment. After the payment is received, a new certificate must be issued, and the members’ register must be updated accordingly. Lastly, the share capital of the company is required to be renewed on the upcoming confirmation statement.
The answer is no. The rights of shareholders are usually unaffected irrespective of the status of the shares, with the only condition being that there hasn’t been any failure in replying to a forfeiture notification after a call warning. Shareholders should have no trouble in exercising any of their rights in the company including dividend, distribution, and voting rights.
Members are free to transfer partly-paid or unpaid shares, as long as the shareholders’ agreement along with model articles permit it, and provided that the new shareholder(s) allow the continuous liability for paying for shares when a call notification is issued by the firm.
As a component of the share transfer procedure, you need to fill out a J-10 stock form and get associated parties to sign it (as opposed to form J-30 which is required each time the shares are entirely paid).
A company may allow its members to pay for its shares at a future date for a number of reasons. Some of these are given below:
When you make a payment for any shares, it’s known as a ‘consideration’. The majority of the shares are paid for in cash; nevertheless, a company may also issue shares to exchange considerations other than cash, which includes properties, services, assets, shares in another limited firm, debt discharge, etc.
As per the 2006 Companies Act, Section 583, cash consideration can be defined as:
If shares have an unpaid status, this should be displayed on statutory records of members and share certificates. Besides, it is necessary to record unpaid shares on your capital statement that must be completed when:
Company directors are accountable for ensuring that share capital, irrespective of whether it is paid, unpaid, or partly-paid, is displayed on the company’s balance sheet when filing the annual accounts.