When are shares fully, partly or nil paid?

If you aren't sure if your shares need to be fully paid up before proceeding with a share transfer on SeedLegals, read on:

Ordinarily when shares are issued, they are paid for by the shareholder in full. The issue price for shares will cover:

  • the nominal value (the fixed value which tends to be low and is usually set at £1, 10p, 1p or even less!), and

  • the rest of the price is the so-called share premium.

Whatever the price, it will then need to be paid. Founders typically pay for their very first shares around the time of incorporation - and going forward, when shares are issued, they are ordinarily paid for by the subscriber in full (in cash or “in kind”, for example by providing services to the company).

What is a ‘fully paid share’?

A share is fully paid if the amount payable for the share, both nominal value and any premium, has been paid in full. For example, NewCo Ltd agrees to issue shares at a price per share of £1.00 (comprising a nominal value of £0.01 and a premium of £0.99) and Batman pays £1.00 for 1 fully paid share.

It is most common for shares to be fully paid up, especially if you’re contractually obliged to pay the full value under a subscription agreement. In fact, if your company is on Model Articles, Article 21(1) actually restricts a company from issuing anything other than fully paid shares, aside from those shares which are subscribed for on formation.

What are ‘partly paid’ or ‘nil paid’ shares?

A private company can, however, issue shares which are partly paid or nil paid, their articles permitting.

  • A share is partly paid if the issue price for the new share has only been paid in part. For example, Cat Woman pays 50 pence for 1 partly paid share in NewCo Ltd.

  • A share is nil paid if the issue price for the new share remains outstanding in full. For example, the company takes no money from Cat Women for the issuance of 1 nil paid share in NewCo Ltd.

If a shareholder holds a partly or nil paid share, the rights attached to their shares are not typically affected - although your custom set of articles may state otherwise.

Why issue ‘partly paid’ or ‘nil paid’ shares at all?

There are a handful of reasons why ‘partly paid’ or ‘nil paid’ shares might be issued, for example:

  • a shareholder may need to defer payment to access capital

  • a shareholder may need to defer payment until such time as a startup has opened a company bank account

  • shares might be allotted at nominal value and the shares might be unintentionally issued for free because the company forgot to ask for payment of the small amount

Can a company request payment of any unpaid amount on its shares?

Yes. The unpaid amount (e.g. the full £1.00 or the balance of 50 pence) remains due and will have to be paid when the company calls for payment of unpaid amounts at a future date, or upon winding up of the company. No debt arises in respect of unpaid shares unless and until a call request on the shares is made to pay the remainder.

If a call has been made on unpaid or partly paid shares and the shareholder fails to settle the amount on time, share forfeiture can occur - but it’s not automatic. Share forfeiture refers to the process under which a shareholder can lose their entitlement to the shares they own by reason of default.

A private company on Model Articles does not permit shares to be issued otherwise than fully paid and so does not contain provisions permitting forfeiture or surrender. The procedure (if any) for share forfeiture will be set out in your custom set of articles. You should look at your company’s articles for guidance on the forfeiture process as it will differ from company to company.

Are there any considerations regarding a share transfer of nil or partly paid shares?

Yes. If you haven’t “fully paid” for your seller shares, you will need to sort this out before proceeding with a Share Transfer on SeedLegals. This is because the J30 (Stock Transfer Form) was designed with the best practice in mind, and that is to only transfer shares that have been fully paid.