If you are thinking of investing your money in shares, then you must understand all about the various aspects of the share allocation process.
Companies employ various share issuing methods while dealing with the shareholders. Each method comes with distinct responsibilities and entitlements. Two of the most popular strategies through which companies allocate shares are partly paid and fully paid shares.
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Partly paid shares involve a payment structure where investors contribute a portion of the share price upfront. The remaining sum can be settled gradually by the shareholders. On the other hand, investors must pay the entire price upfront to be receive fully paid shares.
Let's learn more about partly paid shares and their crucial aspects.
All shares for a company that have only been partially paid for, rather than the full price, are partly paid shares. This option allows investors to acquire shares without making the complete payment initially. The remaining amount can be paid in instalments upon a call for payment, as per company policies.
Let’s understand partly paid shares with the help of an example:
A share is priced at Rs. 150 and an investor purchase it for an initial payment of Rs. 100. The company may later request the outstanding balance of Rs. 50 or set instalment payments. Investing in partly paid shares may involve periodic requests for additional funds until the shares are fully paid off.
When companies seek capital from shareholders, they issue shares to establish ownership stakes. These shares can be fully paid or partly paid, determined by the company's board of directors. Fully paid shares entail collecting the entire share price upfront before issuance.
However, partly paid shares involve collecting payment in instalments, adhering to a predetermined timeline. This approach enables gradual fundraising, sparing the need for immediate full payment. Shareholders, under the partly paid shares model, are not required to raise the entire amount simultaneously.
This mechanism alleviates the burden on shareholders and facilitates smoother capital acquisition for the company.
Partly paid shares offer an opportunity for investment by listing them on the stock exchange, enabling both buying and selling transactions. The prices of these shares are determined based on the company's fully paid stock as well as the instalment payments made. The main advantage of investing in partly paid shares is the ability to acquire shares at a lower price compared to the full issue price.
However, it’s essential to pay the remaining instalments on time. Failure to do so may result in share forfeiture, as per the company's rules and regulations. Upon successful payment of all instalments, partly paid shares convert into fully paid shares, tradable at the full price.
By selling partly paid shares at a reduced price, the instalment amount gets transferred to the buyer's name, effectively facilitating the transaction.
Partly paid shares offer advantages like conversion to fully paid shares upon payment of call money and the inclusion of voting rights. Investors can purchase partly paid shares at a lower price than the fully paid shares.
However, these shares have certain disadvantages too. Partly paid shares might suffer from lack of liquidity, as they are offered at a lower price, making it tough to find buyers or sellers. The prices of partly paid shares can witness more volatility, posing higher investment risk.
Partly paid shares present a good opportunity for investors who are well-versed in their different aspects. Investment in partly paid shares requires a thorough analysis, diligent financial planning, and a long-term perspective. It is essential to assess the financial health of the issuing company along with the market conditions. With detailed research and a calculated approach, investors can harness the full potential of partly paid shares.