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Business Doctor: Shareholder has not paid

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PT writes: I am a shareholder in a company and have recently had to become more involved in operations and administration. During my review of the business, I have identified that someone has been issued shares but has not yet paid the full consideration. What can I do to rectify this?

Usually, shares would be issued for a cash consideration, but you should confirm this as a first step, writes Jon Dawson, partner at Kingston Smith LLP. In some cases, an arrangement may have been put in place for someone to acquire shares in return for their contribution to the business.

Where the shares are issued for cash, the terms would usually be set out formally in a subscription agreement or be part of a shareholder agreement. It would be unusual for there to be nothing in writing, so any correspondence or documents from around the time of issue should be checked. The accounts information should be reviewed carefully to make sure the shares have not been paid for and misallocated.

If you determine that cash is outstanding, you must give the shareholder the chance to pay up. The company’s articles of association may give the directors the right to call in the debt.

If the investor refuses to pay, they could lose any shareholder rights and forfeit their stock, which could be sold to another investor or cancelled.

A further point to consider is the right to receive a dividend on the unpaid shares. The company’s articles may stipulate restrictions and prevent a shareholder from getting a dividend, but this could be waived.