Calls in Arrears: Meaning, Examples and Journal Entries

Calls in Arrears: Meaning, Examples and Journal Entries

5 mins readComment
Chanchal Aggarwal
Senior Executive Content
Updated on Apr 4, 2024 17:52 IST

Calls in arrears arise when shareholders do not fulfil their payment obligations for shares by the specified deadline. It impacts the company's financial planning and necessitates administrative action to resolve the shortfall.

Calls in Arrears

Calls in Arrears arise when shareholders do not pay their full share instalment requirement by the stipulated deadlines. Imagine a situation when Mahindra & Mahindra launches a new sustainable energy project and Calls for share instalment payments. 

Due to financial constraints, a shareholder misses the payment deadline for their 100 shares. The remaining unpaid amount will be considered a call-in-arrear, thus a part of the liability of a shareholder, yet to be fulfilled. This will affect the anticipated financial inflow for the company. 

Scroll your screen down, and let's understand the meaning of Calls in Arrears and other related concepts. 

Table of Content

What is Calls in Arrears?

Call in arrear relates to the time when the shareholder doesn't make the payment of the remaining amount, as in the case of partly paid shares, in the stipulated time. In other words, it is an outstanding balance which remains unpaid by the investor to the company. If shareholders do not meet these payment obligations on time, the unpaid amount is termed as 'calls in arrears.'

Companies may charge interest or penalties on calls in arrears. The company can forfeit the shares if the outstanding amount remains unpaid for an extended period.

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Example of Calls in Arrears

Let's assume Tata Motors announces a new electric vehicle project and wants to collect money by issuing further shares to existing shareholders. The company has fixed a schedule, but a shareholder fails to pay the second instalment of ₹200 per share for 100 shares by the due date.

This unpaid amount, totalling ₹20,000, becomes a "call in arrears." Hence, it affects the project's immediate cash flow, while the shareholder might have to pay a penalty or a loss of ownership rights. 

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Journal Entry of Calls in Arrears

Let’s understand the journal entry for Calls in Arrear. 




  Amount (Dr.)

Amount (Cr.)


Calls in Arrear

          To, Share Capital -  Second Installment

(Being unpaid second instalment is recorded as calls in arrear)




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Difference Between Calls in Arrears and Calls in Advance

Here's a tabular difference between Calls in Arrears and Calls in Advance:


Calls in Arrears

Calls in Advance


Amounts owed by shareholders for shares they have subscribed to but not yet paid for by the due date.

Payments made by shareholders for their shares before the company has requested or before the due date.


Occurs after the payment due date has passed without the shareholder fulfilling their payment obligation.

Occurs before the scheduled payment date, with shareholders choosing to pay early.

Financial Impact on Company

Can negatively affect the company's cash flow and financial planning due to the unexpected shortfall.

Positively impacts the company's cash flow by providing funds earlier than anticipated, potentially aiding in quicker project initiation or debt repayment.

Shareholder Consequences

Shareholders may face penalties, loss of shareholder rights, or even forfeiture of shares for non-payment.

Shareholders do not face penalties; instead, they might benefit from preferential treatment or rewards for early payment in some cases.

Legal and Administrative Aspects

The company may need to undertake legal or administrative actions to collect the dues, adding to costs.

Requires less administrative effort compared to calls in arrears and does not involve legal actions for collection.

Impact on Shareholder Relations

Can strain relations between the company and its shareholders due to the need for enforcement actions.

Generally fosters positive relations as it reflects shareholder confidence and support for the company's initiatives.

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Consequences of Calls in Arrears

For the Company:

Reduced Cash Flow: Immediate financial resources are lower than expected, potentially delaying or impacting project funding and operations.

Administrative Burden: Managing and tracking calls in arrears requires additional administrative effort. It includes communication and legal actions against defaulting shareholders.

Investor Relations: Frequent calls in arrears might affect the company's market reputation. Also, it may reflect poor financial health of the company or investor confidence.

For the Shareholder:

Penalties: Shareholders in arrears may be subject to penalties or additional charges. The share subscription agreement or company policy will specify the details.

Loss of Rights: Shareholders failing to clear their arrears might lose certain rights. It includes voting rights in shareholder meetings until payments are made.

Forfeiture of Shares: In severe cases, the company may have the right to forfeit shares of those in arrears. This will result in a loss of investment for the shareholder.

Legal Action: The company might initiate legal proceedings to recover the unpaid amount. This process would add legal costs and potentially damage the shareholder's credit rating.

General Consequences:

Impact on Future Fundraising: Persistent issues with calls in arrears could make it more challenging for the company to raise funds.

Market Perception: The company's and the shareholder's market reputations could suffer, affecting future investment opportunities and partnerships.

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Calls in arrears represent a critical financial situation where shareholders fail to meet their payment obligations for shares. This impacts a company's cash flow and project funding, necessitates administrative actions, and can strain shareholder relations. Addressing these arrears promptly is essential for maintaining financial stability and ensuring the company's ability to execute its strategic plans effectively.

Top FAQs on Calls in Arrears

What is Calls in Arrears?

Calls in arrears occur when shareholders fail to pay the required amount for their share subscriptions by the due date.

How do Calls in Arrears affect a company?

They can lead to cash flow issues for the company and require administrative efforts to manage the unpaid capital.

What happens if an individual have Calls in Arrears?

Shareholders with calls in arrears may face penalties, lose their voting rights, or, in extreme cases, have their shares forfeited.

Can Calls in Arrears be paid off?

Yes, shareholders can clear calls in arrears by paying the overdue amount along with any applicable penalties or interest.

About the Author
Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio