Meaning of forfeiture of shares

If are you also planning to buy shares of any company, then this article is very useful for you. At the end of the article, we will give a golden line about this article, please see the whole article. forfeiture of shares

To collect capital, the company makes solicitations from the shareholders. If any shareholder does not pay the calls made on his shares even after repeated notices, then the Board of Directors can pass a resolution and forfeit such shares. The Companies Act 2013 does not say anything about the forfeiture of shares. Therefore, legally, the company cannot forfeit the shares unless such a provision is made in the Articles of Association of the company. Are. According to the articles of association of the company, forfeiture of shares is called 'Forfeiture of shares' and the shares which are forfeited are called 'Forfeited Shares'.

forfeiture of shares

The method of forfeiture of shares is as per the Articles of Association or Table 'F' of the company.

1. Presenting the list of non-paying shareholders in the meeting of directors - The shareholders who do not pay the amount of the call within the time fixed for the call, the secretary of the company prepares a list of such shareholders and Presents the list to the Governing Body.

2. Sending of notice- Keeping in view the rules given in the articles of association of the company or in Table 'F', the directors order that notice should be sent to such shareholders who have not paid the amount of call on the shares. In this notice, the shareholders are informed that within a certain period (which should not be less than 14 days from the date of receipt of the notice), the amount of call + interest + other necessary expenses should be paid, otherwise the shares will be forfeited. will go.

3. Sending of a second notice for payment - After the first notice, if the shareholder does not make the payment within a specified time, a second registered notice to that effect is further sent.

4. Passing resolution for forfeiture - If any shareholder does not pay even after the second registered notice, the fact is informed to the Board of Directors and the directors pass the resolution for the shares.

5. Informing the shareholder of the proposal for forfeiture - After this proposal is passed, information is sent to the shareholder that his shares have been forfeited, so he should return the certificate.

6Transfer of the amount received to Share Forfeiture Account - The amount received earlier on forfeited shares is transferred to the 'Share Forfeiture Account'.

7. Removal of name from the register - The name of such shareholders whose shares have been forfeited is removed from the register of members.

8. Declaring forfeiture - An authorized officer of the company declares in writing that the serial number shares have been forfeited.

Provisions for Statutory Forfeiture of Shares

1. Arrangements in the Articles of Association of the Councilors-No company can normally forfeit its shares unless a provision has been made in the Articles of Association regarding forfeiture of shares.

2. Proper justification for forfeiture - There should be proper justification for forfeiture of shares which can be only non-payment of calls by the shareholders for a specified time. The company cannot forfeit the shares for any other reason, even if there is a provision to this effect in the articles of association of the company.

3. Appropriate action to be taken at the time of forfeiture-Forfeiture of shares cannot be considered valid unless proper action is taken for the same. If any call has not been made legally, then the directors cannot proceed with the forfeiture of shares if such a call is not paid.

4. The process of forfeiture should be proper and valid - The process of forfeiture of shares should be proper and valid, otherwise the forfeiture of shares will be considered illegal. The arrangement for the forfeiture of shares should be made according to the valid rules mentioned in the articles of association of the company.

5. The right of forfeiture of shares by directors to be exercised in the interest of the company- Only the directors of the company have the right to forfeit shares. He should exercise this right in the interest of the company. If they do not do so, the forfeiture of shares can be set aside. For this, the shareholders also get the right to file a case in court.

effect of forfeiture of shares

(1) The ownership of the shares does not remain with the shareholder.

(2) A shareholder ceases to be a member of the company in respect of forfeited shares.

(3) He does not have any right to get dividends in the future or any other.

(4) A shareholder is liable only for that amount which was due on the date of forfeiture of shares, that is, he will not be liable for future demands.

(5) If the company is dissolved within one year of the forfeiture, he is liable in the same manner as the creditors of the 'B' list of the company.

re-issue of forfeited shares

The following are the rules regarding the re-issue of forfeited shares

1. Consent of the Board of Directors- The forfeited shares can be sold with the consent of the Board of Directors and these shares can also be liquidated.

2. Amount of re-issue of forfeited shares- Forfeited shares cannot be sold for less than the amount that was outstanding on them i.e. maximum amount equal to the amount forfeited by the company after deducting it to the new shareholders. can be given as Forfeited shares can be issued at a premium.

3. Passing of resolution- A resolution is passed for the re-issue of shares and based on this resolution the shares are re-sold.

4. Issue of share certificates- The company issues a certificate of shares to the new shareholder

golden line

The company informs about the forfeiture of shares in the prospectus issued at the time of the issue of shares so that while the forfeit processor is protected from legal action.

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