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When a company gives shares to existing shareholders or incoming shareholders, the company will ‘issue’ those shares for a price. In most circumstances, the shareholder receiving the shares will pay the full issue price of the shares. The company will then issue the shareholder with ‘fully paid shares’. Sometimes, however, a company will issue ‘partly paid’ shares (also known as ‘contributing shares’). A ‘partly paid’ share means that the shareholder has paid part of the issue price upfront but has not yet paid the remaining amount.

Issuing partly paid rather than fully paid shares has consequences for both the company and shareholders. This article will explain those consequences.

What Are Partly Paid Shares?

Partly paid shares are issued by a company when the shareholder who holds those shares has not paid the full issue price of those shares.

For example, a company issues its shares at $1.00 per share. Angela pays $5.00 in total for 5 shares. The company issues Angela with 5 ‘fully paid’ shares. However, Christina pays $2.50 in total for 5 shares (i.e. 50c per share), and so the company issues Christina with 5 ‘partly paid’ shares. In the company’s register of members and with ASIC, Angela’s shares are recorded as ‘fully paid’ and Christina’s shares are recorded as ‘partly paid’.

Usually, a company only issues partly paid shares to a shareholder if there are compelling commercial reasons. For example, a company may intend to issue shares to a strategic business partner who cannot pay for all the shares at the time of issue. The company may then issue partly paid shares with a payment schedule that sets out the remaining amounts the shareholder must pay.

What Responsibility Does a Shareholder Have for Its Partly Paid Shares?

If a shareholder owns partly paid shares, he or she must pay the remaining issue price at the company’s request. 

The company’s constitution may also set out more information about the shareholder and the company’s responsibility with regards to partly paid shares, such as:

  • that the company is able to ‘call on’ the shareholder to pay amounts owing on the partly paid shares;
  • that the company will develop the terms on which the partly paid shares are issued with the shareholder (e.g. that the amount owing must be paid at once, or can be paid in instalments); and
  • how many days’ notice the company must give if the company calls on amounts owing on the partly paid shares (e.g. the amount owing, the due date and the place of payment).

Usually, the shareholder and the company agree when the company can call on payment at the time of issuing the partly paid shares. 

For example, they may establish a payment schedule setting out the dates when the company will call for the amounts outstanding on the shares. 

After the company receives the balance owing on the shares, the partly paid shares become fully paid shares.

A company’s constitution will also state what happens if the holder of partly paid shares does not pay on time. Typically, the company will be able to:

  • demand interest on the amounts owing on the partly paid shares;
  • sue the shareholder to recover the money owing on the partly paid shares; or
  • require that the shareholder forfeits their partly paid shares and retake ownership of the shares.

What Rights Does a Shareholder With Partly Paid Shares Have?

Shareholders with partly paid shares have the same rights as fully paid shareholders, including the right to:

  • dividend payments,
  • vote at shareholders’ meetings, and
  • participate upon winding up of the company.  

However, a shareholder’s right to dividend payments is typically proportionate to the amount they have paid. 

At a shareholders’ meeting, a shareholder with partly paid shares will have the same votes as a shareholder with fully paid shares if they hold the same class of shares.

For example, all holders of ordinary shares in a company will typically have one vote per share, regardless of whether those shares are fully paid or partly paid.

Key Takeaways

It is important for both the company and shareholders to correctly record whether shareholders have paid the full issue price of their shares. A shareholder should exercise care before subscribing for partly paid shares. In particular, they should understand the:

  • payment amounts they owe to the company;
  • dates on which the company will call on those amounts; and
  • consequences if they are unable to pay. 

If you are looking to issue shares in your company, contact LegalVision’s business lawyers at 1300 544 755 or fill out the form on this page.

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