What Are Fully Paid Shares?
Fully paid shares are shares issued for which no more money is required to be paid to the company by shareholders on the value of the shares. When a company issues shares upon incorporation or through an initial or secondary issuance, shareholders are required to pay a set amount for those shares. Once the company has received the full amount from shareholders, the shares become fully paid shares.
- Fully paid shares are shares issued for which no more money is required to be paid to the company by shareholders on the value of the shares.
- Fully paid shares differ from partially paid shares, in which only a portion of the market value has been received by the company.
How Fully Paid Shares Work
Fully paid shares are different from partially paid shares in which only a portion of the market value has been received by the company. In the case of partially paid shares, the shareholder is still required to pay the remaining amount to the company. For example, let's say Company XYZ sells shares for $50 per share. If the company receives $50, the share is a fully paid share, but if less than $50 has been collected, it is a partially funded share.
For accounting purposes, companies issue shares with a par value, which is a nominal amount, such as $1. Typically, however, the market value is much higher, and the amount over the par value is called the share premium.
Fully Paid Shares vs. Partly Paid Shares
Normally, shares issued are fully paid. That is, investors pay the full amount per share. Sometimes companies will issue unpaid or partially paid shares, however, if the shareholder needs time to access the necessary funds but commits to a payment schedule. In some cases, issuing unpaid shares may also be more convenient for a start-up company.
Shareholders of partially paid shares have the same shareholder rights as fully paid shareholders.
Typically, partially paid shares are only issued to a shareholder if there are compelling business reasons to do so. For instance, a company may intend to issue shares to a strategically aligned partner, who has insufficient funds to pay for all the shares at the time of issue. Usually, the shareholder and the company agree at the time of issue when the company can call on payment. The company may then issue partly paid shares along with a payment schedule that establishes when the shareholder must pay the balance. After the company receives the balance, the partially paid shares convert to fully paid shares.
Partially paid shares have the same rights as fully paid shareholders, including:
- Right to dividend payments
- Right to vote at shareholders’ meetings
- Right to participate upon winding up of the company.
Usually, a shareholder’s right to dividend payments is proportionate to the amount they have already paid. At a shareholders’ meeting where voting is by a show of hands, a shareholder with partly paid shares will have the same vote as a shareholder with fully paid shares (one vote per share).