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The Heart of Section 50 of Companies Act A Deferred Payment Option
Description: For the convenience of both the investors and the company, the section allows the company to accept a portion of the amount due on shares from a member without actually paying the entire paid amount. This means that the investor can contribute only a portion of the actual value of shares initially in order to acquire them.
The importance of this section can be studied under two main sub-headings: –
Why is this Option Offered?
The company may offer the option of deferred payment for the following reasons:
Facilitating Initial Investment:
It allows investors who are looking to upgrade their investment by providing them a medium to acquire shares without having any financial restrictions.
Incentivizing Early Subscription:
Sometimes, the company offers to shareholders who tend to opt for upfront payment to speed up the capital raising process.
Managing Cash Flow:
Corporations can enhance their short-term cash flow by accepting partial payments, supporting operations and future investment.
Flexibility within boundaries:
Section 50 of the Act provides flexibility to the investors and companies within the boundary specified under it.
Partial Payments:
Companies are not required to take a set percentage of the outstanding amount; they can take any fraction.
Phased Payment Schedule:
The company prescribes a pre-determined plan for the investors to pay their remaining dues to the company as per their needs.
Differentiation between Classes:
The shares are said to be of the same class if they fulfill two criteria:
The shares have the same nominal value, and
The shares have the same paid-up capital.
The different types of classes of shares can have different criteria for paying unpaid share capital.
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