Calls on Shares

01/03/2020 0 By indiafreenotes

Reputed companies require the applicants to send the full value of the shares along with the applications. This is because, the Companies Act does not prohibit companies to collect the entire amount at the time of issue itself. But the usual practice of the companies is to collect a certain percentage of the face value of the shares on application and allotment and the balance in one or more installments known as calls.

A call may be defined as a demand made by the company on its shareholders to pay a part or the whole of the unpaid balance within a specified time. Lord Lindley says that the expression “Call” denotes both the demand for money and also the sum demanded.

The following points should be noted, in this context, so that the reader can understand what a call really means.

  1. Time for Making the Call: The call can be made at any time during the life time of the company or during the course of winding up. During the life time, the call should be made by the Board of Directors and during the course of winding up, it should be made by the liquidator.
  2. Obligatory: Each shareholder is obliged to pay the amount of call as and when the call is made. But, this liability arises only when the call is made and not before.
  3. Debt Due: As soon as a call is made, the call amount shall become a debt due from the shareholders to the company.
  4. Consequences of Default: If a shareholder fails to pay the call amount, the company can enforce payment of the amount together with interest or can forfeit the shares.
  5. Calls and Other Payments: A call is different from other payments made by a shareholder. The amounts paid on application and allotment are not calls. Similarly, if a company requires the shareholders to pay the entire amount either on application or on allotment, it is not a call under this Act.

Legal Provisions Relating to the Calls

The statutory provisions relating to the making of calls can be summed up as follows:

  1. Call should Bona fide: The power to make call is generally in nature of a trust and so it can be exercised bona fide and for the benefit of the company. It should not be made for private ends. It means the directors or the liquidator can make the call only when there is a bona fide need for funds.
  2. Uniformity: The calls should be made on an uniform basis on all the shares falling under the same class. If a call is made only on some shareholders of the same class but not on others or a greater amount is demanded from some shareholders and a lesser amount from others of the same class, the call is not valid.
  3. Provisions of the Articles: The calls should be made strictly in accordance with the provisions of the Articles. If this is not done, the call will be invalid.

Procedure for making Calls

Generally, the procedure for making calls is incorporated in the Articles of most companies. If a company has its own Articles, it should follow the provisions of its Articles. If not, the regulations specified in Table A of the Act shall apply.

The following provisions of Table A can be noted at this stage.

  1. The power to make calls generally vests in the Board of Directors.
  2. The calls should be made by passing a resolution at the meeting of the Board.
  3. The call money should not exceed 50% of the face value of the share at one time. However, companies may have their own Articles and raise this limit.
  4. There must be at least 30 days interval between two successive calls.
  5. When a call is made a letter known as “Call Letter” or “Call Notice” should be sent to all the shareholders of the same class.
  6. The notice should also specify the amount of the call, place of payment etc. and should be sent at least 14 days before the last date for payment.
  7. The Board of directors has the power to revoke or postpone a call after it is made.
  8. Joint shareholders are jointly and severally liable for payment of calls.
  9. If a member fails to pay call money, he is liable to pay interest not exceeding the rate specified in the Articles or terms of issue. The directors are free to waive the payment of interest.
  10. If any member desires to pay the call money in advance, the directors may at their discretion accept and pay interest not exceeding the rate specified in the Articles.
  11. A defaulting member will not have any voting right till call money is paid by him.