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A company can forfeit its shares only when the following conditions are satisfied:
- Authority to Forfeit: The power to forfeit must be expressly given in the Articles.
- Default in Payment of Calls: The shares can be forfeited only for the non-payment of calls and not for the default in payment of any other debts.
When can shares held by a shareholder be forfeited?
When a shareholder fails to pay the allotment money or any subsequent calls, then the company informs the shareholder by giving him/her a proper notice. If after the notification, the shareholder still fails to pay the due money, then the company is allowed to forfeit the shares of such shareholders.
Can a shareholder forfeit shares?
If the rights to shares have been breached, then you can forfeit those shares by informing the shareholder of your intent. In circumstances such as this, the former shareholder is likely to lose all rights from the shares and is unlikely to be entitled to any amount if the forfeited shares are then sold.
These shares can be reissued at par, at premium or at discount. Generally, these shares are reissued at a discount i.e. at a price which is less than its nominal value. The amount of discount allowed at the time of reissue in no case should be more than the amount forfeited on such shares.
What is the effect of forfeiture of shares?
– The liability of a person whose shares have been forfeited comes to an end when the company receives the payment in full of all such money in respect of shares forfeited. – A member is liable for unpaid calls even after the forfeiture of shares.
What is the procedure for forfeiture of shares?
Procedure of forfeiture of shares The Board of Directors has to give at least fourteen days notice to the defaulting members calling upon them to pay outstanding amount with or without interest as the case may be before the specified date.
A company can forfeit shares only when the Articles of Association of the company contain a provision for share forfeiture. A shareholder subscribing to the shares of a company owes the subscription price of the shares to the company. The company may call upon the shareholder to pay the price in instalments.
What happens when shares are forfeited?
An investor loses the subscription money already paid in a case where the shares are forfeited. Hence, there are no capital gains upon forfeiture of the shares. The shares forfeited can be reissued to another shareholder at a different price by the company.
Can forfeited shares by reissued at discount?
If forfeited shares are re-issued at a discount, the amount of discount can, in no case, exceed the amount credited to Shares Forfeited Account. Discount thus allowed on re-issue has to be debited to Shares Forfeited Account.
Accounting Treatment for Forfeiture
- Share Capital – debited with total amounts called up.
- Unpaid Call A/c (Allotment, First Call etc) – credited with the portion of the amount called up but unpaid.
- Share Forfeiture A/c – credited with the amount already paid by the defaulter.
What is called “forfeiture” of shares?
Forfeiture of shares is referred to as the situation when the allotted shares are cancelled by the issuing company due to non-payment of the subscription amount as requested by the issuing company from the shareholder. In the event of forfeiture of shares, the shareholders loses the rights and interests of being a shareholder and ceases to be a member of the organisation.
What is the forfeiture of shares?
Forfeiture of Shares Conditions for Forfeiture of shares. Authority to Forfeit: The power to forfeit must be expressly given in the Articles. Procedure of Forfeiture of shares. The secretary shall prepare a list of defaulters i.e., the list of members who have not paid the call money up to the last date, Annulment of Forfeiture.
A forfeited share is a share in a publicly-traded company that the owner loses (or forfeits) by neglecting to live up to any number of purchase requirements.