When a company issues shares, it expects shareholders to pay for them in full or instalments. But sometimes, people don’t pay as agreed. That’s when the company uses forfeited shares, reclaiming ownership and reallocating it effectively. This guide explains what are forfeited shares, how they work, and why they matter.
Forfeited shares are shares that a company takes back when a shareholder fails to pay the required allotment or call money. In simpler terms, if a shareholder doesn't pay the due amount for the shares they applied for, the company cancels their right to own those shares. This process is known as forfeiture of shares.
The forfeited shares can later be reissued by the company, often at a discount. However, the original shareholder loses all rights and claims over those shares once they are forfeited.
Here’s the usual process:
The company issues a notice to the shareholder, stating the unpaid amount with a deadline (often 14 days).
If payment is not made, the Board passes a resolution to forfeit the shares.
The company removes the shareholder from its register.
All rights to these shares are cancelled.
The amount paid till then is held by the company.
Let’s look at a clear forfeit of shares example:
Company XYZ issues 1,000 shares at ₹10 each (application ₹3, allotment ₹4, final call ₹3). Ravi applies for 100 shares and pays ₹7 per share but misses the final call of ₹3 (₹300 total). After a reminder, the Board forfeits Ravi’s 100 shares. The company keeps ₹700 paid so far and can reissue the shares.
Reissue of forfeited shares means selling them again. Here’s how it works:
The company can resell shares at the same price or at a discount, but the discount cannot exceed the amount already paid.
A Board resolution is needed.
New shareholders get full rights.
For example, if XYZ Ltd reissues the 100 shares at ₹8 per share, it earns ₹800. Along with the ₹700 retained, the company gains ₹1,500 in total.
On the Company
Issued capital decreases temporarily.
The amount paid up to forfeiture is kept.
The company can reissue shares to recover funds.
On the Shareholder
They lose their investment.
All rights related to those shares are gone.
Using forfeited shares offers key advantages:
Financial recovery: The company keeps paid money and can reissue shares.
Control over ownership: Removes investors who do not comply.
Governance enforcement: Encourages shareholders to pay on time.
Forfeited shares are a valuable tool for companies to manage defaults. Through forfeiture of shares, they uphold their financial stability and governance. The reissue of forfeited shares helps bring responsible investors into ownership, ensuring the company’s structure remains sound.
It means cancelling shares when payment is missed, resulting in loss of rights.
They can be forfeited when allotment or call money is not paid after a notice period.
Yes. The company can reissue forfeited shares by following proper procedures and pricing rules.
In the example above, Ravi’s 100 shares were forfeited for non-payment of the final call. The company retained ₹700 and can resell those shares.
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