Q&As

If a company issues shares unpaid or partly paid to a shareholder (A), and A subsequently transfers the shares to a third party (B) before they are paid up, are A and B jointly and severally liable for the amount unpaid on the shares?

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Published on LexisPSL on 17/06/2016

The following Restructuring & Insolvency Q&A provides comprehensive and up to date legal information covering:

  • If a company issues shares unpaid or partly paid to a shareholder (A), and A subsequently transfers the shares to a third party (B) before they are paid up, are A and B jointly and severally liable for the amount unpaid on the shares?
  • Background
  • Liability
  • Effect

Background

The nominal value of a share does not need to be paid at the time of issue. Shares can be nil paid, partly paid or fully paid although the company’s articles of association may provide that shares must be fully paid up (including any premium). If they are not fully paid a shareholder is liable to pay in full:

  1. if the company makes a call on the shares, or

  2. if the company is wound up

For further information, see Practice Note: Different classes of share capital, in particular the section entitled: Nominal value of shares.

Liability

The Insolvency Act 1986 (IA 1986), s 74 legislates on the liability as contributories of present and past members of a company to contribute to the debts of the company. IA 1986, s 74(1) provides: 'When a company is wound up, every present and past member is liable to contribute to its assets to any amount sufficient for payment of its debts and liabilities, and the expen

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