CALLS IN ARREAR AND CALLS-IN ADVANCE ( ACCOUNTING FOR SHARE CAPITAL)

 CALLS IN ARREAR

Under the Companies Act 2013, "calls in arrears" refers to the unpaid portion of a call made by a company to its shareholders.

 

Here's a breakdown:

 

 Call: A call is a demand for payment of a certain portion of the subscribed share capital of a company. It's a way for the company to collect funds from its shareholders to meet its financial needs.

 

 Calls in Arrear: When shareholders fail to pay the call amount by the due date, the unpaid portion is termed "calls in arrear". This unpaid amount remains a liability on the shareholder until paid up.

 

 Consequences: Companies typically have provisions to enforce payment of calls in arrears, which may include charging interest on the unpaid amount or even forfeiture of shares in extreme cases.

 

 Disclosure: The company must disclose the details of calls in arrears in its financial statements, ensuring transparency regarding its financial obligations.

 

 Legal Implications: Non-payment of calls in arrears can lead to legal action by the company to recover the outstanding amount, and in severe cases, it could result in the shareholder losing their shares or facing other penalties.

 

Overall, calls in arrears represent an outstanding financial obligation on the part of shareholders towards the company, which the company can enforce legally if necessary.

 

CALLS-IN ADVANCE

 

1. Definition:

   - Calls in advance are payments made by shareholders to the company before the company has issued a formal call for payment on their shares.

   - Shareholders may choose to pay for their shares in advance for various reasons, such as to demonstrate their commitment to the company or to take advantage of any discounts offered for early payment.

 

2. Treatment under Companies Act 2013:

   - The Companies Act 2013 does not specifically regulate or prohibit calls in advance. Instead, it provides a framework for the issuance and payment of shares by companies.

   - Companies have the flexibility to determine their own policies regarding calls in advance, including whether to accept such payments and under what terms and conditions.

 

3. Accounting Treatment:

   - When shareholders make payments for shares in advance, the company typically records these payments as a liability in its financial statements until such time as the company formally calls for payment on the shares.

   - Once the company makes a call for payment, it then transfers the amount received in advance from the liability account to the share capital or other appropriate accounts.

 

4. Impact on Shareholders:

   - Shareholders who make payments for shares in advance may benefit from discounts or preferential treatment offered by the company.

   - However, they also bear the risk that if the company encounters financial difficulties or fails to issue shares as expected, they may lose the amount paid in advance.

 

In summary, calls in advance refer to payments made by shareholders to the company before formal calls for payment on their shares are issued. While the Companies Act 2013 does not specifically regulate this practice, companies have the discretion to determine their policies regarding calls in advance, subject to compliance with applicable laws and regulations.

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