Understanding Fully Paid and Partly Paid Shares in Stock Market Investments

When investing in the stock market, one of the critical decisions you need to make is whether to purchase fully paid shares or partly paid shares. Each type of share has its own implications and requirements, making it essential to understand the differences between the two before making an investment. In this article, we will explore the definitions, implications, and considerations of fully paid and partly paid shares to help you make an informed decision in your investment strategies.

What are Fully Paid Shares?

A fully paid share is one in which the purchaser has already paid the total issue price of the share. This means that the shareholder has met all their payment obligations after the purchase. For example, if a company issues shares at Rs 10 each, and a shareholder buys those shares for Rs 10 each, they have completed the payment requirement. No further payments are due from the shareholder, making the share fully paid.

What are Partly Paid Shares?

A partly paid share is one in which the purchaser has only paid a portion of the total issue price. For instance, if the share is issued at Rs 10, but the shareholder only pays Rs 5, this represents a partly paid share. The remaining amount (Rs 5) is the balance that the company can request the shareholder to pay at a later date. This process is known as exercising a call option.

Implications of Partly Paid Shares

Companies issue partly paid shares under certain compelling commercial reasons, such as when the company needs to attract strategic business partners who cannot afford to pay the full price upfront. In such cases, the company retains the right to:

Call on the shareholder to pay the remaining balance on the shares. Set the terms for the payment, including whether the remaining amount can be paid in installments. Decide how many days’ notice the company must give before requesting payment.

When a shareholder holds partly paid shares, they have the same rights as fully paid shareholders. However, their right to dividend payments is typically proportionate to the amount they have paid. For instance, a shareholder with partly paid shares may receive a proportionate amount of dividends compared to fully paid shareholders. Additionally, at a shareholders' meeting, a shareholder with partly paid shares will have the same voting rights as a shareholder with fully paid shares, assuming they hold the same class of shares.

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Examples of Fully and Partly Paid Shares

Let's look at a couple of examples to solidify our understanding:

Reliance Normal Shares

Reliance Normal shares, which are currently trading at Rs 2100, are fully paid shares. This means that the purchaser has already paid the total issue price of these shares.

Reliance Partly Paid Shares

Reliance PP shares, trading at Rs 1200, represent partly paid shares. In this case, the shareholder has only paid Rs 314.25 out of the Rs 1250 issue price. The remaining balance (Rs 935.75) is the amount that the company can potentially call on the shareholder to pay.

It's important to note that the given prices (Rs 2100 and Rs 1200) have no direct relation to whether the shares are fully paid or partly paid. They are simply codes to identify the specific shares in the market.

As a potential investor, understanding the differences between fully paid and partly paid shares is crucial for making well-informed investment decisions. Whether you choose to invest in fully paid shares or partly paid shares depends on your financial situation and risk tolerance.

Conclusion

Now that you have a clear understanding of fully paid and partly paid shares, you are better equipped to make informed investment decisions in the stock market. Remember, fully paid shares require immediate payment, while partly paid shares can be called upon at a later date. Choose wisely, and always seek professional advice to navigate the complexities of the investment world.