Difference between Calls in Arrears and Calls in Advance
Basis |
Calls in Arrears |
Calls in Advance |
---|---|---|
Timing |
When you miss paying the full amount owed on your shares by the due date, it becomes a call in arrears. |
This happens when you pay early, choosing to settle your share payment, or a portion of it, before the official due date. |
Impact on Accounts |
A negative mark. It shows as a debit balance on the company’s books, reducing their recorded capital. |
A positive sign. It appears as a credit balance, representing a liability for the company (money owed to you). |
Balance Sheet Placement |
Deducted from the called-up capital to arrive at the paid-up capital on the balance sheet. |
Shown on the liabilities side of the balance sheet, under “other current liabilities.” |
Interest |
The company can charge a penalty (up to 10%) on the unpaid amount. |
The company might offer interest (up to 12%) on your early payment (depending on their articles of association). |
Company Approval |
No company approval needed, it’s a consequence of missed payment. |
Not all companies allow this. They can only accept calls in advance if their articles of association permit it. |
Company Impact |
Creates a cash flow gap for the company, potentially disrupting their financial plans. |
Provides a cash flow boost to the company, allowing them to potentially invest in growth initiatives sooner. |
Shareholder Rights |
May lead to restrictions on your shareholder rights, like voting privileges. In severe cases, shares could be forfeited. |
No impact on your shareholder rights. |
Difference between Calls in Arrear and Calls in Advance
Investing in a company can involve calls for payment on your shares. Understanding the difference between calls in arrears and calls in advance can help you manage your financial obligations and avoid any surprises. Let’s study what these terms mean and how they impact you as a shareholder.