A company is at a discretion not to demand the full amount of nominal face value of the shares and the premium on those shares in lumpsum at the time of application and may instead demand in installment depending on requirements. This means the shareholders or subscribers may pay the total amount in installments i.e. on application of allotment, on a first call, or second or final call.

The word call can be defined as calling for an amount due in share. A call may be defined as a demand made by the company on shareholders to pay any unpaid money on shares, payment may be made partly or wholly.

When does a call become due? A call becomes due when notice is issued making a call.

A call can be deemed to have been made at the time when the resolution of the directors authorizing the call was passed.

Essentials of a Valid Call

1. Board resolution. Before any notice for a call is issued, the Board must pass a resolution approving such a call to be The Board approving this call must be duly convened.
2. In Tanzania, all calls must be made per the Memorandum and Articles of Association. Where there is no provision made in the Memorandum and Articles of Association, then Table A would apply, unless otherwise the company expressly did not adopt Table A.
3. The Companies Act provides that a call should be uniformly made on all shares falling under a For example, if a call is made on an ordinary share, all holders of other ordinary shares must be called to pay too.
4. The call must be made bonafide by the A call must be in the best interest of the company as the power to make calls is in the nature of trust.
5. Time and Place of payment. This must be specified either by Board resolution or

Interest Rate

Articles usually provide for interest on call in arrears; – if this is not specified, then interest is charged as per Table A. For the case of Tanzania, if the interest rate is not fixed by the allotment, it shall be at a rate not exceeding five percent per annum, however, the directors have the power to waive payment of such interest wholly or in part.

Forfeiture of Shares

Forfeiture is the withdrawal of shares due to non-payment of any call by the shareholders for any other ground as may be provided by the Articles of Association. On forfeiture, the member loses the amount paid thereon and his interest in the ownership of the shares.

If a shareholder fails to pay the allotment money or call money or any part thereof on the shares held, his shares may be forfeited by a resolution of the Board of Directors. Forfeiture could also mean confiscation of shares of a defaulting shareholder for non-payment of allotment.

On confiscations, the name of the member is removed from the register of members. If the company is however wound up within the year of forfeiture, he would be liable for the company debts.

Surrender of Shares

There is no provision in the Companies Act of Tanzania, including Table A regarding the surrender of shares. Surrender of shares can be defined as the return of shares by the shareholder to the company. The surrender of shares clause may be included in the articles of the company.

Thus, if the Company is authorized by articles, it can accept the surrender of shares in the following cases.

1. Surrender in exchange for other shares of the same nominal value
2. Surrender where the shareholder is not able or willing to pay the unpaid call on This could as well be a shortcut to the long process of forfeiture.

However, in practice, the registrar of Companies in Tanzania accepts surrender of shares as long as there is a resolution from the Company authorizing the acceptance of such a surrender.

Lien

A lien is a legal right against an asset that can be used as collateral to satisfy a debt. A company can claim a lien on shares to prevent a member to transfer his shares unless his debt is paid to the company. A company as a general rule does not have a lien on the shares of a member but articles may provide that the company shall have a paramount lien on the shares of every member for his debt and liabilities of the Company. Lien may be extended to dividends due on the shares and to the amount receivable by the member in respect of his shares on winding up of the company.

The main difference between a lien on shares and forfeiture of shares is that; – while a company’s lien in shares is the right of the company to prevent a member to transfer his shares unless he pays his debt payable to the company, forfeiture of shares means confiscation of shares of a shareholder by way of penalty of his default in payment of calls.

More so, once a lien is enforced by sale, any surplus from sale proceeds belongs to the former shareholder after deducting the amount due, while with forfeiture any gain from re-issuing forfeited shares is retained by the company.

Note as well that currently, the Business Registration and Licensing Agency (BRELA) has added another requirement in any application for forfeiture of shares, the company must present an audited financial statement together with the application, the registrar can only satisfy himself that shares were not paid up and they need to be forfeited through the audited financial statements of the company.

Note: This article is written and published for general guidance on matters of interest only, and does not constitute professional advice.