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What are partly paid shares?

With Reliance Industries gearing up to collect the second instalment of its partly paid shares, let's understand what these are.

What are partly paid shares?

After raising capital from shareholders, a company issues shares to them, which represents their stake in the company. These shares are paid either fully or partly. In the case of fully paid shares, a company collects the entire amount of the share value at one go while issuing shares. On the other hand, a company collects the money in instalment while issuing partly paid shares. In such cases, the company fixes the timeline of collecting the proportionate share price.

A company follows this route when it does not need the entire amount raised at one go. Further, it also gives time to shareholders to pay for their shares. For example, Reliance Industries (RIL) came up with the largest rights issue* of more than Rs 53,000 crore in 2020. For this, RIL issues partly paid shares. The shares were issued at a price of Rs 1,257 per share. But out of this, 25 per cent, i.e., Rs 314.25 had to be paid at the time of allotment and the rest 75 per cent in the current financial year. As per the payment schedule, the next instalment of 25 per cent is due next month and investors holding these partly paid shares will have to pay Rs 314.25, with the remaining Rs 628.50 (balance 50 per cent) to be paid in November 2021.

Just like fully paid shares, these partly paid shares are also listed on the stock exchanges for buying and selling and their price is dependent on the company's fully paid stock price and the amount of the instalment paid. With partly paid shares, investors get an opportunity to buy a company's stock at a lower price. But they need to pay the remaining instalments when due or if they exit before the due date. Once all the instalments are paid on these shares, they are converted into fully paid shares and traded at the same price.

*Under a rights issue, a company raises additional capital from its existing shareholders by offering additional shares, which help shareholders maintain their stake in the company.