Definition in Detail
A Fully Paid Share is a type of stock in a corporation where the shareholder has paid the entire amount due for the share at the time of its issuance. This means that the shareholder has no further financial obligations toward the nominal or par value of the share and has met any premium required. Fully paid shares provide shareholders with various privileges such as the right to vote in shareholder meetings and they may also receive dividends, if declared by the company.
Characteristics of Fully Paid Shares:
- Total Value Contribution: The shareholder has contributed the full amount of the share’s value, implying no further payments are due.
- Rights and Privileges: Shareholders often enjoy voting rights, dividends, and other shareholder privileges.
- Less Risk: For the issuing company, fully paid shares mean they do not need to account for any future liability regarding the share capital from these shareholders.
Examples
Example 1: Individual Investor
John purchases 100 shares of XYZ Corporation. Each share has a par value of $10, and John pays $15 per share, incorporating a premium. John has no further obligations regarding these shares.
Example 2: Corporate Acquisition
ABC Corp acquires 1,000 shares of DEF Inc., each with a par value of $20. They negotiate a price of $25 per share. ABC Corp pays the entire amount upfront, leading to these shares being fully paid.
Frequently Asked Questions (FAQ)
Q1: What happens if a shareholder does not fully pay for their shares?
A: If shares are not fully paid, they are categorized as partly paid shares. The shareholder still owes the unpaid portion and may be required to pay it upon a call from the company.
Q2: Are fully paid shares subject to calls?
A: No, fully paid shares are not subject to calls as the shareholder has already paid the full par value plus any premium.
Q3: Can fully paid shares be issued at a premium?
A: Yes, fully paid shares can include a premium above the par value, which constitutes additional payment beyond the nominal amount.
Q4: Do fully paid shares confer more rights than partly paid shares?
A: While the core rights such as voting may remain the same, fully paid shares are free from additional payment obligations, potentially influencing the attractiveness of the shares.
Q5: Can fully paid shares lose their status?
A: Once shares are paid in full, they retain their fully paid status as long as the company does not renege on its equity structure.
Related Terms
Partly Paid Share
A Partly Paid Share is a share for which the shareholder has not yet paid the full amount of the nominal or par value. The remaining balance may be called upon by the company at a later date.
Paid-Up Share Capital
Paid-Up Share Capital refers to the amount of money a company has received from shareholders in exchange for shares of stock that have been fully paid for. This capital constitutes part of the company’s equity.
Online Resources
- Investopedia - Fully Paid Share: Investopedia - Fully Paid Share
- Corporate Finance Institute (CFI) - Share Capital: CFI - Share Capital
- Securities and Exchange Commission (SEC) - Shareholder Rights: SEC - Shareholder Rights
Suggested Books for Further Studies
- “Accounting for Share Capital” by David E. Jones: A comprehensive guide to understanding various aspects of share capital including fully paid shares.
- “Corporate Finance” by Stephen A. Ross, Randolph W. Westerfield, and Jeffrey Jaffe: This book offers insights into corporate financial structures, including equity capitalization.
- “Fundamentals of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, and Alan J. Marcus: This text provides a broad understanding of corporate finance topics, including share capital and fully paid shares.
Accounting Basics: “Fully Paid Share” Fundamentals Quiz
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