Is it possible to issue unpaid shares

Company would like to issue 10.000 unpaid shares because company's bank account is not (yet) set-up

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Hypothetical scenario; If non-UK resident would like to form a UK based corporation (Ltd.) with 1 shareholder who is also acting as the company's director and initially issue i.e. 10.000 shares with the nominal value of £0.01, is he required to deposit £100 (on company's bank account) immediately when shares are issued, or can the company issue so-called unpaid shares?

Can unpaid shares status last infinitely long? I assume that the owner is liable to pay the nominal summarized shares value of i.e. £100, in the event that the business runs into financial trouble, or it is dissolved  – am I correct?

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Portia profile image
By Portia Nina Levin
22nd Jun 2017 11:02

If the company's articles permit it, it is possible to do exactly as you say, and the share capital need never be paid.

Any amounts outstanding on the shares would need to be contributed in the event of insolvent liquidation. That is the limit on the shareholders' liability implicit in the term limited [liability] company.

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Replying to Portia Nina Levin:
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By ms998
22nd Jun 2017 11:16

I assume s455 would apply on the unpaid amount together with BIK on such loan if appropriate.

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By Portia Nina Levin
22nd Jun 2017 11:41

Then you assume incorrectly.

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Replying to Portia Nina Levin:
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By ms998
22nd Jun 2017 13:03

Portia Nina Levin wrote:

Then you assume incorrectly.

Is this on the basis that the company has not actually asked for the payment and therefore it is not a debt/lent money?

If they had asked for payment and it was unpaid still would this change analysis?

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By Portia Nina Levin
23rd Jun 2017 10:53
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Replying to Portia Nina Levin:
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By niklasswe
22nd Jun 2017 12:19

I am glad someone confirmed my thesis - Options like this makes UK corp. environment very competitive.

I think this "maneuver" is recommended if the newly established company doesn't have a UK bank account (yet) and/or if company wants to implement an acquisition - then the owner can be called by the company (voluntarily) and pay the nominal value of all shares and sell them to other shareholder to raise the capital who then pay the nominal value + shares premium.

At this point I would also like like to touch the below mentioned S455 post. I don't think that S455 charge is applicable here because owner did not make withdrawals from a company he just formed a company with unpaid shares.

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By Portia Nina Levin
22nd Jun 2017 12:22

It has been decided that there is no "debt" where shares are issued unpaid, and the unpaid amounts have not been called by the company.

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Out of my mind
By runningmate
22nd Jun 2017 12:12

Or the shares could be issued in exchange for cash (which the company could keep in a drawer somewhere!).
RM

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Replying to runningmate:
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By niklasswe
22nd Jun 2017 12:28

Thanks for your reply but unfortunately I don't get your statement.

Can you please elaborate on "exchange for cash and keep in a drawer"? - Let's assume that owner(s) would like to promote and stand for the long-term success of the company.

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By Portia Nina Levin
22nd Jun 2017 12:35

The idea is that you issue the shares as fully paid and then show £100 of cash on the balance sheet that doesn't actually exist. Nobody's going to know.

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Replying to niklasswe:
By johngroganjga
22nd Jun 2017 14:57

He means that a bank account is not the only place where the proceeds of issuing shares can be paid into. If payment is made in cash it can be kept in a drawer until needed to be deployed to further the success of the company. Some of us in fact would find the use of a drawer for this purpose rather vulgar and amateurish. A more professional repository for cash would be a petty cash tin kept in a locked safe.

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Replying to johngroganjga:
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By Portia Nina Levin
22nd Jun 2017 15:19

Obviously, that's likely to be an imaginary petty cash tin in an imaginary safe, behind the fake Rembrandt.

Incidentally John, I think it should simply be "amateur" (a noun, an adjective and an adverb), rather than "amateurish" (an amateur attempt at making an adverb/adjective out of the noun).

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Replying to johngroganjga:
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By Dib
22nd Jun 2017 17:08

But surely when you have purchased said petty cash tin and had a safe installed you wouldn't have any money left!

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By halblackburn
22nd Jun 2017 17:59

There is no requirement for the bank account to be located in the UK, nor for the shares to be denominated in sterling.

If there is to be only one shareholder then remember to satisfy CA2006 s123(1).

If you want to have nil/part-paid shares you will not be able to use the Model Articles of CA2006 as these require all shares to be issued fully paid. You will require Articles to be drawn up by a solicitor or company formation agent.

There is no need to make shares fully paid before selling them. UK company law allows shares to be transferred that are nil/part-paid. This is why there are two types of stock transfer form J10 (for nil/part-paid) and J30 (fully paid).

A snag with nil/part-paid shares is the company neglects to ever issue a call for payment and a future liquidator is then able to claw back dividends paid on those nil/part-paid shares. Declared dividends are payable in proportion to the extent that the shares are paid-up.

If the company runs into trouble and there are unpaid creditors the liquidator can require the shareholders to contribute sufficient funds to make their shares fully paid.

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Replying to halblackburn:
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By Portia Nina Levin
23rd Jun 2017 10:45

halblackburn wrote:

A snag with nil/part-paid shares is the company neglects to ever issue a call for payment and a future liquidator is then able to claw back dividends paid on those nil/part-paid shares.

No they can't. They can demand that the share capital is paid up in order to pay the company's creditors and they can demand repayment of any unlawful dividends received by anybody that knew or should have known that they were unlawful.

halblackburn wrote:

Declared dividends are payable in proportion to the extent that the shares are paid-up.

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No, they're not. A company is permitted by CA 2006, s 581 (note the important word MAY), if the articles allow, to pay dividends in proportion to the amounts paid up on the shares. It is not obliged to. This is actually an advantage of partly paid shares.

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