Share forfeiture

Procedure for forfeited shares:

The usual procedure is that the defaulting shareholder must be given a minimum 14 days notice requiring him to pay the amount due on his shares along with interest on it stating that if he fails to pay the amount and the interest on it, the shares will be forfeited. Inspite of this notice, the shareholder does not pay the unpaid amount. The directors after passing a resolution will forfeit the shares and information will be given to the defaulting shareholder about the forfeiture his shares.

Effect of forfeiture of shares:

1. Termination of membership: The membership of the defaulting will be terminated and they lose all the rights and interest on those shares i.e. ceases to be the member / shareholder / owner of the company and his name will be removed from the Register of Members

2. Seizure of money paid: The amount already paid on the forfeited shares by the defaulting shareholders will be seized by the company and in no case will be refunded back to the shareholder.

3. Non payment of dividend: When shares are forfeited the shareholder remains no longer the member of the company therefore he looses the right to receive future dividend.

4. Reduction of share capital: Forfeiture of shares result in the reduction of share capital to the extent of amount called up on such shares.