Meaning of Forfeiture of Shares
When the amount of shares issued by the company is received in installments, then some shareholders are unable to pay the amount of allotment and calls on their shares, then in such a situation a suit can be filed against the defaulting shareholder or his shares can be redeemed under the provisions of the Articles of Association. can be forfeited under Often the company forfeits the shares. Forfeiture of shares means cancellation of allotment of shares by the defaulting shareholder and forfeiture of the amount so far received.
Procedure of Forfeiture of Shares
If the allotment amount is not paid within the stipulated time, the secretary of the company prepares a list of all such shareholders and this list is presented to the director. After this, a notice is sent to the defaulting shareholders that the unpaid calls and the interest due on them should be paid within the stipulated time, otherwise their shares will be forfeited. If the defaulting shareholder does not pay even on this notice, another similar notice is sent to him. If the payment is not received even on this notice, then the Board of Directors passes a motion for forfeiture of the shares. On passing of this motion notice is given to the shareholder that his shares have been forfeited and that he should return the share certificate and his name is removed from the register of members. The amount received on those shares is transferred to the share forfeiture account. After this a written declaration is published in which the shares forfeited are mentioned.
Rules Regarding the Forfeiture of Shares
The important rules regarding forfeiture of shares are as follows: (1) Forfeiture is made only when the directors of the company have the right to forfeit in the Articles of Association.
(2) Forfeiture can be done only on the ground of non-payment of demands and not on any other ground.
(3) The right of refusal is received by the directors in the form of a trust, so it should be used for the benefit of the company.
(4) No forfeiture can be considered valid unless the necessary conditions for forfeiture are fulfilled.