What it means
When a company issues shares it agrees a price with the buyer, and that price can be collected all at once or in instalments. Shares are fully paid once the whole agreed amount has been handed over, which is how the great majority of shares in listed companies are issued.
The distinction matters because of what remains owing. A shareholder holding partly paid shares has a contingent obligation: if the directors, or a liquidator, make a call for the unpaid balance, that money must be paid, so the unpaid amount behaves like a debt waiting to be triggered.
For a limited company, fully paid shares are what makes limited liability real in practice. The most a holder of fully paid shares can lose is what they have already paid, whereas a holder of partly paid shares can lose that plus the uncalled balance.
On the balance sheet the money received is split between two lines in most jurisdictions. The nominal or par value goes to share capital and anything paid above that goes to share premium, and both together represent cash the company has actually received.
Partly paid structures still appear in specific settings. Investment trusts, capital-hungry infrastructure vehicles and some private placements use them so that investors commit capital now but only fund it when the money is needed, which improves the investor's return on the cash actually deployed.
In practice
Real-world examples.
Example
A retail investor buys 2,000 shares in a listed brewery through a broker for $18.40 each. The shares are fully paid, so once the $36,800 settles she owes the company nothing further no matter what happens to the business.
Example
An infrastructure fund raises $200,000,000 in partly paid shares, calling 25% on issue and drawing the rest as projects reach financial close. Investors earn a return on the money actually called rather than sitting on idle cash, and the shares only become fully paid once the final instalment is drawn.
Example
A liquidator of a failed haulage company writes to shareholders holding partly paid shares demanding the uncalled $0.60 per share. The holders of fully paid shares in the same company receive no such letter, because they have already discharged their obligation in full.
Formula
Calculation
Amount paid up per share = Issue price per share - Amount unpaid per share
Total called-up capital received = Number of shares x Amount paid up per share
Larkspur Utilities issues 500,000 ordinary shares at $4.00 each, with a nominal value of $1.00 per share.
If the shares are issued fully paid:
Cash received = 500,000 x $4.00 = $2,000,000.
Share capital = 500,000 x $1.00 = $500,000.
Share premium = 500,000 x ($4.00 - $1.00) = $1,500,000.
Amount still callable from shareholders = $0.
If instead the shares are issued partly paid, with only $1.50 per share called on application:
Cash received = 500,000 x $1.50 = $750,000.
Uncalled amount = 500,000 x ($4.00 - $1.50) = $1,250,000.
That $1,250,000 is money the company can demand later, and it is a liability hanging over every partly paid shareholder until it is either called or formally cancelled.Case study
Seen in the real world.
Fennimore Rail Holdings is a fictional company invented to illustrate how the two share types differ when things go wrong. In its first funding round it issued 1,000,000 shares at $2.00 each, fully paid, raising $2,000,000 from a group of founders and angel investors.
Two years later it needed more capital but its backers were wary of writing another large cheque up front. It issued a further 1,000,000 shares at $2.00 partly paid, calling $0.50 on issue and raising $500,000, with $1,500,000 left uncalled and available if the expansion went well.
The expansion did not go well, and an administrator was appointed. The holders of the fully paid shares lost their $2,000,000 and nothing more, while the holders of the partly paid shares lost their $500,000 and then received a call for the outstanding $1,500,000, which the administrator was entitled to collect to pay creditors. The illustrative lesson is that partly paid shares are cheaper to enter and considerably more dangerous to hold.
Watch out
Common mistakes.
- Assuming every share is automatically fully paid. Most are, but partly paid shares exist, and the difference only becomes visible when a call is made, usually at the worst possible moment.
- Treating the nominal value as the amount paid. A share with a $1.00 nominal value issued at $4.00 is fully paid at $4.00, and the extra $3.00 sits in share premium rather than being an amount still owing.
- Believing limited liability protects a partly paid shareholder from a call. Limited liability caps exposure at the full issue price, so any uncalled portion remains legally payable.
Questions
People also ask.
How do I check whether my shares are fully paid?
The share certificate or the register of members states it, and company filings normally show the called-up and paid-up capital separately from the nominal capital.
Can partly paid shares be turned into fully paid shares?
Yes, once the outstanding balance is called and paid, the shares become fully paid and the contingent obligation disappears.
Do partly paid shares carry the same voting and dividend rights?
Not always; rights are frequently scaled to the proportion paid up, so a shareholder who has paid a quarter of the price may receive a quarter of the dividend on those shares.
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