What are unpaid shares?
Generally when shares are issued, they are paid for by the shareholder. This payment may just cover the nominal value or it might include a premium. There are, however, situations where no money is paid on a share, or only a fraction of the amount due is paid. There are unpaid and partly paid shares respectively. Where a shareholder holds an unpaid or partly paid share, they still retain all of the rights attached to those shares that they would if they were fully paid up.
Why issue unpaid or partly paid shares?
A company may issue unpaid or partly paid shares for a variety of reasons. The shareholder may need time to access funds (particularly if a high premium is being paid on the shares). A company that has just incorporated may not yet have set up a bank account. A company may also wish to retain the option to forfeit the shares in the future for various reasons. Often, unpaid or partly paid shares are issued unintentionally, particularly when it is only nominal value that is being paid on them - the company may simply forget to ask for such a small amount (which may be a matter of pennies) or it may not realise that such a small amount needs to be paid.
Consequences of unpaid or partly paid shares
As mentioned above, holding an unpaid or partly paid share still gives the shareholder the full benefits of the rights attached to those shares as they would if they were fully paid but it is not without risk.
For so long as the shares are not fully paid the shareholder has an obligation to pay for those shares in full in the future when requested to do so by the company. The company may choose to issue a call notice on the shareholder, which requires them to pay the unpaid amount (or part thereof). If the shareholder fails to pay by the deadline within such notice, the directors may issue a forfeiture notice if permitted by its articles of association. If the shares are not paid up during the period of the forfeiture notice it will likely result in the shareholders losing their entitlement to the shares.
What happens once the shares are fully paid up?
Once the unpaid or partly paid shares have been fully paid up, a number of steps will need to be taken. The register of members will need to be updated to reflect the price paid for the shares, and a new share certificate may be required. There are no immediate filings required at Companies House, but the fact that the shares have been paid up will be reflected in the next statement of capital and/or confirmation statement.