by Calls on shares refer to the process by which a company issues a call to its shareholders to pay the remaining balance on the shares they have been allotted. When a company issues shares, it typically requires the shareholders to pay only a portion of the share value upfront, with the remainder to be paid at a later date as determined by the company. This remaining balance is known as the call amount.
The process of calling on shares is governed by the provisions of the Companies Act, 2013, and the articles of association of the company. In this article, we will explore the concept of calls on shares in detail, including the reasons why they are necessary, how they are made, and the consequences of failing to pay the call amount.
Reasons for making Calls on Shares
There are several reasons why a company may issue a call to its shareholders to pay the remaining balance on their shares. Some of the common reasons include:
Raising Capital
The primary reason for making calls on shares is to raise capital for the company. When a company issues shares, it typically requires the shareholders to pay only a portion of the share value upfront, with the remainder to be paid at a later date as determined by the company. This allows the company to raise capital without requiring the shareholders to pay the full value of the shares upfront.
Covering Expenses
Another reason for making calls on shares is to cover expenses associated with the issuance of shares, such as underwriting fees, legal fees, and other expenses.
Maintaining Solvency
In some cases, a company may issue a call to its shareholders to maintain its solvency. If the company is experiencing financial difficulties, it may require additional capital to remain solvent and continue operating.
Process of Making Calls on Shares
The process of making calls on shares typically involves the following steps:
Authorisation:
The first step in the process of making calls on shares is for the board of directors to authorize the call. The board must ensure that the company has the necessary authority under its articles of association and other relevant laws to make the call.
Notice to Shareholders
Once the call has been authorized, the company must issue a notice to its shareholders informing them of the call. The notice must include the amount of the call, the due date for payment, and the consequences of failing to pay the call amount.
Payment of the Call Amount
After the notice has been issued, shareholders must pay the call amount by the due date specified in the notice. The call amount can be paid in a variety of ways, including cash, cheques, or electronic transfers.
Share Certificates
Once the call amount has been paid, the company must issue share certificates to the shareholders. Share certificates are legal documents that provide proof of ownership of the shares.
Consequences of Failing to Pay the Call Amount
If a shareholder fails to pay the call amount by the due date specified in the notice, the company may take the following actions:
Forfeiture of Shares
The company may forfeit the shares of the shareholder who fails to pay the call amount. This means that the shareholder loses the shares and any money they have already paid towards the shares.
Legal Action
The company may take legal action against the shareholder to recover the call amount.
Sale of Shares
If the shares are forfeited, the company may sell them to another investor to recover the call amount.
