Shares to be fully paid: Overview, definition, and example
What are "shares to be fully paid"?
"Shares to be fully paid" refers to a condition in which the entire nominal value (or face value) of shares issued by a company has been paid in full by the shareholder. This means that the shareholder has paid the full amount required for the shares, including any calls or installments due, and the company has no further claims on the shareholder for additional payments. Fully paid shares are often contrasted with partly paid shares, where the shareholder may still owe additional amounts to the company for the shares purchased.
For example, if a company issues 1,000 shares with a nominal value of $1 per share, and the shareholder pays the entire $1 per share, those shares are fully paid.
Why are "shares to be fully paid" important?
Shares to be fully paid are important because they represent a completed transaction where the company has received the full payment for its shares. This gives the shareholder full ownership rights over the shares, and the company is not dependent on the shareholder for any further payment. Fully paid shares also have greater legal clarity because there is no further obligation for the shareholder to pay additional amounts, reducing the risk of future disputes or claims related to unpaid shares.
For the company, issuing fully paid shares ensures that it has received the agreed-upon funds and can use the proceeds to finance its operations, growth, or other objectives. For shareholders, fully paid shares grant full ownership without the risk of additional financial obligations.
Understanding "shares to be fully paid" through an example
Imagine a startup company issues 500 shares at $10 per share to raise capital. An investor purchases the full 500 shares and pays $10,000 in total, making the shares fully paid. This means that the investor now holds 500 fully paid shares, with no further payments required. The investor has full rights to the shares, including dividends and voting rights, and the company no longer has any further claims on the investor for additional payment on these shares.
In another example, a company might issue partly paid shares, where the investor only pays $5 per share initially and agrees to pay the remaining $5 per share at a later date. The investor would only hold "partly paid" shares until the full amount is paid, and the company could call for the remaining payment when necessary.
Example of a "shares to be fully paid" clause
Here’s how a "shares to be fully paid" clause might appear in a contract:
"The Shares issued under this Agreement shall be fully paid. The Shareholder agrees to pay the full nominal value of each Share as required by the Company, and upon payment, the Shares will be considered fully paid. No further calls or payments shall be required by the Shareholder in respect of the Shares."
Conclusion
"Shares to be fully paid" ensures that the company receives the complete agreed-upon payment for the shares issued and that shareholders do not have any further financial obligations related to those shares. Fully paid shares offer clarity, security, and full ownership rights for the shareholder and are an essential part of corporate financing.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.