What is Calls in Arrear?

Calls in arrears refer to a situation when a shareholder fails to pay the entire amount owed on their shares by the due date. Imagine you invest in a company that issues stock at $10 per share, with a commitment to pay half upfront and the remaining half later. If you don’t pay that second half by the deadline, the unpaid amount becomes “calls in arrears.” This can lead to penalties, loss of voting rights, or even forfeiture of your shares in extreme cases.

Features of Call in Arrears

1. Missed Payment: Calls in arrears occur when a shareholder fails to pay the full amount owed on their shares by the due date. Imagine you buy stock at $20 per share with a 50% down payment, but miss the deadline to pay the remaining $10. That unpaid amount becomes a call in arrears.
2. Negative Impact: Calls in arrears can hurt your shareholder rights. Companies may charge penalty fees or interest on the unpaid amount. In severe cases, they can even restrict your voting rights or force you to forfeit your shares.
3. Financial Strain: For the company, calls in arrears can create cash flow problems. They might have planned their operations based on receiving the full amount from shareholders, and delays can disrupt those plans.
4. Resolution Options: There are usually ways to address calls in arrears. You can contact the company to discuss a payment plan or potentially sell some of your shares to cover the owed amount.
5. Timely Action: It’s crucial to deal with calls in arrears promptly to avoid escalating penalties and potential loss of your investment.

Do Read: Accounting Entries for Calls in Arrears

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.