Forfeiture and Re-issue of Shares

Introduction

When a shareholder fails to pay the allotment money or a call after repeated reminders, the company may take back the shares. This cancellation is called forfeiture, and the shares so recovered are usually sold again to new investors, which is the re-issue. This chapter studies why forfeiture happens, how it is recorded, how forfeited shares are re-issued, and how the profit on the whole transaction is finally settled.

Meaning of forfeiture

Forfeiture of shares means the compulsory cancellation of the shares of a member who has not paid the amount due on them within the time allowed. When shares are forfeited, the defaulting shareholder loses both the shares and the money already paid on them. The power to forfeit must be given by the articles of association, and the company must follow the prescribed notice procedure before forfeiting.