In this article, Neha Verma pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses the validity of call on shares under the Companies Act.
Introduction
The Companies Act, 2013 defines a “Company” as a company incorporated under this Act or any other previous company law. There are various types of Company like company limited by shares, company limited by guarantee and Section 8 company.
A Company limited by shares is a Company which by its memorandum limits the liability of its members to any unpaid amount on shares held by the members of the Company respectively.
Types of Share Capital
The share capital in a company limited by shares is divided as follows:
(i) Authorized capital
Authorized share capital is the maximum amount of capital that a Company is authorized by its memorandum to raise from investors. A company cannot issue shares beyond its authorized share capital.
(ii) Issued share capital
Issued share capital is that part of share capital that is issued by the Company from time to time to its investors for a subscription.
(iii) Subscribed share capital
Subscribed Share Capital is that part of the capital of a Company that is subscribed by the members of the Company for time being;
(iv) Called up capital
It is that part of the share capital of a Company that is called for payment
(v) Paid up share capital
Paid up share capital is the part of the share capital of the Company against which payment has been or has been credited to be paid up.
Issue of shares
Whenever a Company issues shares to investors then those shares can either be fully paid or partly paid.
- “Fully paid shares” are those shares for which full issue price has been paid by the shareholder to the Company.
- On the other hand, “partly paid shares” are those shares for which the shareholder has paid only part of the issue price of the share. In case of partly paid shares, the Company has the right to demand from the shareholder the remaining payment on the partly paid shares as and when required by it.
Meaning of call on shares
“Call on shares” means the demand made by the Company on its shareholders holding partly paid shares to pay part or full unpaid amount on the shares. The board of directors of the Company makes such a call on shares in accordance with terms and conditions of issue of shares and as per articles of association of the Company.
The unpaid amount on partly paid shares is the liability of the shareholders to the Company and the Company has the right to call for payment of such liability as and when deemed fit by the board of directors of the Company. Generally, Companies prefer to collect the full amount of share issue price at the time of issue of shares. However, some companies may give the option to its shareholder to pay the share price in below instalments:
- part of the share price at the time of share application which shall not be less than 5% of the nominal amount of the share
- part payment is made at the time of allotment of shares and
- the balance unpaid amount shall be payable by the shareholders as and when demanded by the Company, as per the requirement of the board of directors.
If a shareholder fails to pay the call money as demanded by the Company within the time period provided by the Company, then the Company may forfeit his shares.
Essentials for a valid call on shares
The Board of Directors of a Company has the right and authority to make calls on shares. For making a valid call on shares the Board of Directors shall ensure that:
Board Resolution
Call on shares shall be made by the Board of Directors by passing a board resolution in this regard as only the Board of directors of the Company has the authority to make calls on shares. This power cannot be delegated by the Board of directors to any single director or to any committee and must be exercised by the Board itself.
Uniform basis
Companies Act, 2013 provides that whenever any call on shares is made for a single class of shares then such calls should be on a uniform basis for all shares in that class. However, as regards to the shares which have the same nominal value but different paid up amount then such shares cannot be considered to be belonging to a single class of shares.
Articles of Association
Board of directors of a Company should ensure that the calls on shares is made as per the procedure outlined in the Article of Association of the Company. In case the articles of a Company do not contain any provision in this regard then the Board shall follow the Regulations 13-18 as laid down in Table F of Schedule I of Companies Act, 2013.
Call for Company benefit
Although the board of directors of a Company is authorized to make a call on shares, it is their duty to make calls on shares when the Company genuinely requires fund and/or for any bonafide purpose. The Board should not make calls to meet their private ends or for any other whimsical reason.
Companies Act 2013 requirements
Any calls on shares shall satisfy the following requirements:
- The call on shares should not exceed one-fourth of the nominal value of the share
- It should be made only after one month has expired from the previous call date
- Shareholders belonging to a single class should be asked to make payment on the uniform basis
- The company should give shareholders at least 14 days’ notice specifying the time and place of payment
SEBI regulations
As per the SEBI (Listing obligations and disclosure requirements) Regulations, 2015 provides that a listed company had no lien on its fully paid shares although it has a lien on its partly paid shares but only on the amount called or payable at a fixed time on such shares. Also, in case of payment in advance of the call, a listed company can pay interest on such advance but it cannot confer dividend right or right to participate in profit on the shareholder in respect of payment made in advance on call.
Procedure to make a call on shares
A company which intends to make calls on its unpaid shares shall follow the following procedure:
Board Resolution
The board of directors shall pass a board resolution to make calls on shares which shall clearly specify the time and place to make payment for a call on shares. A call is deemed to be made when a board resolution is passed in this regard, such call can be paid in instalments also if so required.
Call notice
The Company should send to each shareholder as mentioned in its register of members a 14 day “Call notice” specifying the time and place for payment of calls
Joint shareholding
If shares are held jointly then the shareholders of those shares are jointly and severally liable to pay a call on shares
Interest on delayed payment
If any amount that is called and has not been paid before or on the appointed date for payment, then such shareholder would be required to pay interest @ 10% p.a. or at a lower rate as decided by the Board of Directors from the appointed date of payment to the actual date of payment. The Board also has the right to waive payment of interest either wholly or in part.
Call as per terms of issue
If by the terms of an issue, any payment of share becomes payable on a certain date either on allotment or any other fixed date whether upon nominal value of the share or on premium, then it shall be considered as a call duly made and shall become payable by the shareholder
Forfeiture of share
In the event the payment on call has not been made by any shareholder then the Board may send a reminder to the shareholder and if no payment is made even within the time period provided by the Board then the Board shall have the right to forfeit such shares on which payment has not been made. The Board can forfeit the share of any shareholder only after providing him proper notice of such forfeiture and such notice should be of 14 days and must specify a date for payment of call.
Advance call payment
Section 50 of the Companies Act, 2013 provides that the Board of Directors of the Company can accept at their discretion any advance payment made by the shareholder for any unpaid and uncalled amount on the shares held by such shareholder.
The Board may pay interest on the aforesaid advance payment made by a shareholder. However, interest on such advance payment shall not exceed @12% p.a. unless decided otherwise by the members of the Company. The final rate of interest payable on such advance payment shall be decided by the Board in consultation with the shareholder.
Amount paid as advance call payment cannot be repaid by the Company without shareholder approval. Shareholder’s which have made an advance payment of unpaid amount shall not be entitled to any voting rights on the amount paid by him unless such amount is called up by the Company.
Case laws
Sykes’ Case (1872) on the advance payment of calls
In this case, the Court held that a Company should accept advance payment of call money from any shareholder only if benefits the Company and not to meet the private ends of the directors.
Conclusion
Every company limited by shares issues shares to its investors which shares can either be fully paid or partly paid. In case of partly paid shares, the shareholders get an opportunity to pay call money on shares by instalments. The Board of directors of the Company has the sole right to make call on shares and the unpaid amount on shares immediately becomes payable as soon as a call is made by the Board in this regard. It is the duty of the Board of directors to ensure that a valid call on shares have been made which shall as per the procedure provided in the articles of the Company and as per SEBI regulations in this regard.
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