Unpaid Shares Explained

Everything you need to know to avoid pitfalls and stay compliant

Issuing shares can be a straightforward process—but unpaid or partly paid shares can add unexpected complexity. From tax implications to administrative headaches, it’s important to understand the risks and obligations before going down this path.

In this guide, we’ll break down:

• What unpaid and partly paid shares are 🔍
• Why companies might issue them 💡
• The tax and legal consequences to watch out for 🧾
• How to avoid potential pitfalls 🚨

Whether you’re new to share issuance or looking to avoid common mistakes, this FAQ has got you covered. Let’s dive in! 🚀

Contents📋

• What are unpaid shares?
• Why issue unpaid shares?
• Tax implications of unpaid shares
• Risks of unpaid or partly paid shares
• Fully paid shares: What happens next?
• Does Vestd support unpaid shares?
• Final note: Avoid unpaid shares
  

💡 What are unpaid shares?

When shares are issued, the shareholder typically pays for them—this payment can cover just the nominal value (the minimum required) or include a premium.

However, there are cases where no money is paid, or only part of the amount due is paid. These are known as unpaid shares and partly paid shares, respectively. Despite not being fully paid up, shareholders still retain all the rights attached to those shares.

🔍Why issue unpaid or partly paid shares?

Companies may issue unpaid or partly paid shares for several reasons:

• The shareholder needs time to access funds (especially if the shares carry a high premium).
• The company is newly formed and doesn’t yet have a bank account.
• The company wants to keep the option to forfeit the shares in the future, if necessary.

🚨 Heads up: In many cases, unpaid or partly paid shares are issued unintentionally—for example, when the company overlooks collecting the nominal value (which could be just a few pennies).

👉 However, we strongly recommend avoiding unpaid shares due to the significant tax consequences and administrative headaches they can cause.

⚠️ Tax implications of unpaid shares

Unpaid or partly paid shares can trigger unwanted tax liabilities. HMRC treats the unpaid portion as a notional loan to the shareholder, resulting in:

1. Annual income tax charges
   
   • The unpaid portion is treated as an interest-free loan. This benefit triggers annual income tax, which must be reported on a P11D form and paid via self-assessment. 📄 
   • Employer NIC may also be due on the loan benefit.
2. Close company exemptions
   
   • If the company qualifies as a “close company” (controlled by a small group of shareholders or directors), there may be relief available for employees actively managing the business.
3. Waived amounts
   
   • If the unpaid portion is waived (or deemed waived, e.g., if share value falls), the waived amount can trigger income tax and NIC charges.

🔑 Tip: Given these complexities, we recommend speaking to a professional tax advisor to avoid any surprises.

🚨 Risks of unpaid or partly paid shares

While shareholders enjoy full ownership rights, unpaid shares come with serious obligations:

• You still owe the money: The company can issue a call notice requiring payment of the unpaid amount.
• Missed payments = forfeiture: If payment isn’t made on time, the company may issue a forfeiture notice (if allowed in the articles of association), meaning you could lose the shares altogether.

✅ Fully paid shares: What happens next?

Once the shares are fully paid up, a few simple steps are needed:

1. Update the register of members.
2. Issue a new share certificate, if required.
3. Companies House doesn’t need immediate filings, but the payment will appear in your next Statement of Capital or Confirmation Statement.

Does Vestd support unpaid shares?

🚫 Not yet—but we’re working on it!

If you’ve issued unpaid shares outside of Vestd, unfortunately, we can’t update your cap table. Companies House requires the unpaid share amounts to be tracked at an aggregate level on a Statement of Capital.

🔧 Quick fix: Ask the shareholder to pay at least the nominal value. Once that’s done, your next confirmation statement will reflect the shares as fully paid up.

Final note: Avoid unpaid shares🧠

Unpaid or partly paid shares may seem like a good idea in certain situations, but the risks and tax implications usually outweigh the benefits.

To keep things simple and compliant:

• Always ensure that at least the nominal value is paid upfront.
• Seek professional advice to understand the legal and tax consequences.📞
  
  

Our team, content and app can help you make informed decisions. However, any guidance and support should not be considered as 'legal, tax or financial advice.'