Section 50 of Companies Act. Company to accept unpaid share capital, although not called up.

“(1) A company may, if so authorized by its articles, accept from any member, the whole or a part of the amount remaining unpaid on any shares held by him, even if no part of that amount has been called up.

(2) A member of the company limited by shares shall not be entitled to any voting rights in respect of the amount paid by him under sub-section (1) until that amount has been called up.”

Flavors of Section 50 of Companies Act

Article of Association:

The Article of Association is one of the important documents in the company charter. It provides for the rules and regulations of the company and defines the company’s purpose. The document lays out how tasks are to be accomplished within the organization, including the process for appointing directors and handling financial records.

Member:

The members of the company are those whose name is entered in the company’s register of members. They are also the owners of the company. There are various persons who can be a member in the company such as: –

Minor
Company
Foreigners
Partnership firms
Trade unions
Insolvent
Hindu Undivided Family

Unpaid Shares:

When the shareholders get allotment of shares, they either pay complete price of the share or they only get an instalment of the amount. The amount that remain as dues on the shareholders are known as unpaid shares.

Voting Rights:

The section clearly specifies that every member of the company that are holding the equity share capital of the company shall have the right to vote on every resolution that is placed before the company. It also stated the value of the votes that are casted by each member of the company. The value of the vote is proportional to their shareholding. This implies that the more share you own, the more you will be heard in key decision that has the potential to affect the company’s course.

Share Capital:

The total amount a company generate after issuing the number of shares to its investor is referred as Share capital. There are two ways through which an investor can be the owner of the share:

Issued share capital
Subscribed share capital

Intricacies of Section 50 of Companies Act

The company’s internal management is covered by the articles of association, which also seeks to implement the goals specified in the memorandum under Section 5(1) of the Companies Act of 2013.

Section 50 of the Companies Act, 2013 permits a company to accept unpaid share capital from any member in full or in portions of the shares that they own. The company does not have to make the demand to pay unpaid share capital; its article of association authorization is the only prerequisite for accepting unpaid share capital.

The Heart of Section 50 of Companies Act : A Deferred Payment Option

For the convenience of both the investors and the company, the section allows the company to accept a portion of the amount due on shares from a member without actually paying the entire paid amount. This means that the investor can contribute only a portion of the actual value of shares initially in order to acquire them.

The importance of this section can be studied under two main sub-headings: –

Why is this Option Offered?

The company may offer the option of deferred payment for the following reasons:

Facilitating Initial Investment:

It allows the investors that are looking to upgrade their investment by providing them a medium to acquire shares without having any financial restrictions.

Incentivizing Early Subscription:

Sometimes the company gives offer to those shareholders who tend to opt for upfront payment in order to speed up the process of capital raising.

Managing Cash Flow:

Corporations can enhance their short-term cash flow, supporting operations and future investment, by accepting partial payments.

Flexibility within boundaries:

The section 50 of the Act provides the flexibility to the investors as well as companies within the boundary specified under it.

Partial Payments:

Companies are not required to take a set percentage of the outstanding amount; they can take any fraction.

Phased Payment Schedule:

The company prescribes a pre-determined plan for the investors to pay their remaining dues to the company as per their needs.

Differentiation between Classes:

The shares are said to be of the same class if they fulfil two criteria:

The shares have same nominal value, and
The shares have same paid-up capital.

The different type of class of shares can have different criteria for paying of unpaid share capital.

What happens to the Voting Rights?

A call on shares is a request made by the directors of the company to the shareholders, informing them that they must pay the company a specific sum of money as was either partially or entirely agreed upon.

When the shareholders pay the remaining amount of the share capital that was unpaid upon the call on share as demanded by the company they get the voting rights. The Section 47 of the Act clearly specifies that every member of the company that are holding the equity share capital of the company shall have the right to vote on every resolution that is placed before the company.

However, If the member of the company limited by shares pays the remaining unpaid share capital even when the company has not demanded it then, the company is obliged to accept the remaining amount under section 50(1), but, under 50(2) the member will get the voting rights only when the company calls upon the shares.

The Ripple Effect of Unpaid Share Capital

The effect of this provision of Companies Act, 2013 is different for different stockholders. The most probable reason for the implementation of this section can be:

Companies:

This provision allows the companies to lure the investors to buy their shares in order to raise their share capital rapidly.

Investors:

It provides investors the flexibility in managing their financial restrictions and allows them to expand their portfolio.

Regulators:

They ensures that the flexibility given to them should be within boundaries and no exploitation of investors can be done by the corporations.

In Conclusion: A Balancing Act for Mutual Benefit

The section 50 of the Companies Act, 2013 brings advantages to both the company seeking new investors and the investors hoping to upgrade their holdings without jeopardizing their financial stability.

The Pros and Cons of the provisions have clearly been specified in the section, it brings clarity and both the company and investors can contribute to a dynamic and well-regulated corporate ecosystem.

FAQs

Q1) What is a call for unpaid capital?

A call for unpaid share capital is one in which the company’s directors inform the shareholders that they are obligated to pay the remaining share amount owed to the company.

Q2) How do you show unpaid share capital?

The company generally shows the remaining dues of unpaid share capital in their statement of capital.

Q3) What is unpaid and uncalled capital?

The remaining amount of the subscribed share capital is known as the unpaid share capital whereas, when the remaining dues of the share capital has not been called upon by the company they are known as uncalled capital.

Q4) Can shares be issued unpaid?

There are two ways through which an investor can be the owner of the share:

Issued share capital
Subscribed share capital

The shares can be issued to the shareholders through subscribed share capital.

Q5) Is unpaid capital an asset?

The unpaid share doesn’t provide the company any share capital and also the investors doesn’t get the voting rights therefore, it can be concluded that the unpaid capital is not an asset.

Q6) What is the total aggregate amount unpaid shares?

The total aggregate amount of unpaid share can be calculated by subtracting the initially paid value of share with the total value of the share.

Q7) Can a company issue shares to pay debt?

A company may issue shares to pay debt or settle its liability; however, the primary purpose of all share issuances is to settle the company’s liabilities and raise capital.

Q8) Can a minor hold share?

The minor can be a member of the company but they cannot hold shares in personal capacity. They can hold share only under the guardian.

Q9) What is the difference between issued and subscribed shares?

Issued share capital: The value generated by the company after actually selling the shares to the investors.
Subscribed share capital: The number of shares that are committed to be purchased by the investor before the actual selling of shares is known as subscribed share capital.

Q10) Are Shareholders Liable for Company Debts?

Since the amount of liability that can be imposed on shareholders is limited to the value of their outstanding shares which is not considered as company’s debt hence, the shareholders are not accountable for the debt of the firm.

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Section 50 of Companies Act 2013

Aayush Aman

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