Forfeiture of shares:
When any company allots share to the applicants, it is done on the basis of a legal
contract between the company and the applicant, which makes it binding upon the
shareholders to pay the amount of allotment and calls whenever they are due. Now if
any shareholder fails to pay the allotment and or call money due to him, the
shareholder violates the contract and the company is entitled to take its share back,
which is known as forfeiture of shares. The company can forfeit such shares if
authorised by the Articles of Association. Forfeiture of share can be done according to
the rules laid sown in the Articles and if no rules are given in Articles, the provisions of
Table A, regarding forfeiture will apply. Forfeiture of shares means cancellation of
allotment to defaulting shareholders and to treat the amount already received on such
shares is not returnable to him – it is forfeited.
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
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.
Company Can issue Forfieture share in Premium/ Discount or at Par Also.
Forfeiture of fully paid up shares:
Usually the shares are forfeited for non-payment of the calls. But at the same time fully
paid up shares can be forfeited in such cases as default in fulfilling any agreement
between the members or on expulsion of members where the articles specifically
provide for such details