Startup Law

What’s the difference between a partly paid and fully paid shares?

Startups which often lack the capital to compete with established companies on salary when hiring employees, look to reward their employees in other ways.

One such way is through shares and the issuing of equity.

According to the LawAdvisor legal research team 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 receive dividends. A person can hold one or many shares, which together represent that person’s percentage of ownership in 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 the available for purchase by potential shareholders, the shares can be fully paid, or partly paid.

Fully paid shares

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. 

Partly paid shares

This means the purchaser has only paid part of the total issue price of the share when purchasing it. For example, they may have only paid 60 cents for a share issued at $!. 

This means the company can, when it chooses and on giving notice to the shareholder, request that the shareholder pay the balance on each share (the remaining 40 cents. When this occurs, the company is said to be exercising a call option. The purchaser of the partly paid shares should be notified when purchasing the shares of their obligations in respect of potential future payments.