Unpaid Share Money: Prorated by One Method, Subtracted by Another

Rule 11UA(1)(c)(b) of the Income-tax Rules, 1962, the net asset value formula used to fix the fair market value of an unquoted equity share, computes FMV as (A+B+C+D−L) × PV/PE. The Explanation defines the two terms doing the actual work: "PV= the paid up value of such equity shares" and "PE = total amount of paid up equity share capital as shown in the balance-sheet." Net worth is not divided by the number of shares outstanding. It is divided by total paid-up capital, then multiplied by the specific share's own paid-up value. A share that is only 60 per cent called simply carries a PV that is 60 per cent of a fully-paid share's PV, and gets 60 per cent of the notional per-share net worth in return. Nothing is subtracted afterward. Proportionality is built into the formula itself, not applied as a separate adjustment, and the formula runs identically whether every share in the company is fully paid or not.

The valuation-of-shares technique taught in Indian accounting practice for the net assets method runs the other way for exactly the same fact pattern. Its standard treatment, run within a single class of shares carrying a single face value, first adds the uncalled amount back to net assets, as though every share had been paid in full, then divides by the total number of shares to reach a notional fully-paid intrinsic value. The partly-paid share's own value is then fixed by a direct subtraction: intrinsic value of a fully-paid share, minus the uncalled amount per share. Checked against the worked mechanics, that is not mathematically equivalent to scaling by the paid-up proportion. Recompute the same figures under the two methods and they diverge, sometimes by a wide margin, because a flat rupee subtraction and a percentage haircut only agree by coincidence.

The net assets method is not committed to flat subtraction as a matter of principle. Where a company has more than one class or face value of share outstanding, the standard technique first splits net assets between the classes in the ratio of their respective paid-up capital, only dividing by share count within each class afterward. That split-by-paid-up-capital step is structurally the same operation as Rule 11UA's PV/PE mechanism, just performed once across classes rather than continuously across every individual share. The flat subtraction shows up specifically inside a single class of otherwise-identical shares. Move across a class boundary, and the same tradition reaches for proportionality instead.

The dividend-yield method for share valuation runs a formula of its own: value per share equals the rate of dividend divided by the normal (expected) rate of return, multiplied by the paid-up value of the share. A share paid up to 80 per cent of face value gets 80 per cent of the fully-paid figure the same formula would produce, because the paid-up value is a direct multiplicand, not a base subject to a later adjustment. On this specific question, the yield method and Rule 11UA's PV/PE formula reach the same structural answer, proportional scaling by what has actually been paid, even though one is a statutory tax formula and the other is a market-based income approach with no statutory anchor at all.

Outside Rule 11UA's own closed statutory mechanism, nothing fills the gap. ICAI Valuation Standard 303, the standard actually governing financial instruments, and International Valuation Standards likewise, address market, income, and cost approaches to financial instruments generally, credit-risk and liquidity adjustments among them, but neither names partly-paid shares, calls in arrears, or uncalled capital anywhere in their text. A Section 247 registered valuer asked to value a partly-paid share outside a Rule 11UA engagement is choosing between two long-standing but uncodified accounting traditions that disagree with each other on the exact question that matters, with no notified standard picking a side.

One transaction sidesteps the disagreement rather than resolving it. Section 68(2)(e) of the Companies Act, 2013 conditions a buy-back on "all the shares or other specified securities for buy-back are fully paid-up." A partly-paid share is not a harder buy-back to price. It is not an eligible buy-back at all. Neither the Section, the applicable rules, nor the commentary checked for this piece states a reason for the exclusion, but the practical effect lines up with the finding in Share Buy-backs: The One Mechanism With No Valuer Mandate At All: a buy-back keeps finding ways to avoid the exact judgement calls that make other share transactions need a valuer in the first place.

Company law rarely legislates the economics of a partly-paid share directly, but where it does, the direction is proportional. Section 51 lets a company pay dividends in proportion to the amount paid-up on each share, where its articles authorise it, an optional, board-level mechanism rather than a mandatory default. It is not a valuation rule, and it does not resolve the net-assets-method question above. But it is the clearest signal in the Act itself of which of the two competing conventions company law's own drafting instinct actually favours when it engages with partly-paid shares at all.

There is no single answer to whether unpaid share money is prorated or simply subtracted, and treating it as a settled question in either direction gets the framework wrong. Rule 11UA's statutory formula and the market-based yield method both prorate, structurally the same move by two entirely different routes. Traditional net-asset practice subtracts flatly within one class of shares, then reverts to proportionality the moment a second class enters the picture. ICAI's Valuation Standards and International Valuation Standards, the material that actually governs a registered valuer's engagement outside a Rule 11UA context, never take a position at all. Which convention applies to a given partly-paid share turns entirely on which method the valuation is already running under, not on any single rule written to answer the question directly.