Hi there. A share is a bundle of legal rights that a person can hold in relation to a company. These rights allow the shareholder to do certain things, like vote at company meetings and to receive dividends. A person can hold one or many shares, which together represent that person’s percentage of ownership of a company.

A company can create as many shares in itself as it wants (called a share issue) for whatever price it wants (called the issue price). When the company issues shares and makes them available for purchase by potential shareholders, the shares can be fully paid or partly paid.

A fully paid share means the purchaser has paid the total issue price of the share. For example, shares may be issued for $1 each, and a shareholder may purchase those shares for $1 each. The shareholder has no further obligation to pay money on that share (i.e. the shareholder cannot be required in the future to pay any additional money to the company in respect of those shares).

A partly paid share means the purchaser has only paid part of the total issue price of the share when purchasing it. For example, the purchaser may have only paid 60 cents for a share issued at $1. The company can, when it chooses and on giving notice to the shareholder, request that the shareholder pay the balance on each share (i.e. the remaining 40 cents). When this occurs, the company is said to be exercising a “call option”. A purchaser of partly paid shares should be notified, when purchasing the shares, of their obligations in respect of potential future payments.

As a company wanting to issues shares to raise capital, it is important to consider whether fully paid or partly paid shares are the best option. A fully paid share means that the company gains more capital at the outset, but a partly paid shares means the company has access to additional capital in the future. For a shareholder, purchasing partly paid shares may mean less of an upfront investment, but it also means that you could be called upon to contribute additional capital when the company wants it. There may also be important tax issues that need to be taken into account for a holder of partly paid shares.

Suggested way forward

The type of shares issued by or purchased in a company can have significant legal, financial and tax implications. You should consider speaking to a lawyer about share issues and what legal rights and responsibilities are involved in different types of share issues or purchases. By pressing the “Consult a Lawyer” button, LawAdvisor can help you search for experienced lawyers and obtain fee proposals for their services. Costs for legal advice and representation will vary between providers based on experience and the scope of services.