Re-issue of shares refers to the process of issuing previously forfeited shares to new shareholders. Forfeiture of shares generally occurs when an existing shareholder fails to pay the call money on the shares they hold, resulting in the company re-acquiring those shares. These forfeited shares can then be re-issued to new investors or existing shareholders.
Types/Categories of Re-issue
- Re-issue at a Discount: Forfeited shares are re-issued at a price lower than their original issue price.
- Re-issue at Par: Shares are re-issued at their nominal value or original issue price.
- Re-issue at Premium: Shares are re-issued at a price higher than the original issue price.
Mathematical Model: Re-issue Pricing
To determine the re-issue price:
$$ P_{reissue} = P_{original} - D $$
where:
- \( P_{reissue} \) = Re-issue price
- \( P_{original} \) = Original issue price
- \( D \) = Discount applied to the re-issue (if any)
Importance of Re-issuing Shares
- Capital Retention: Allows the company to recover capital from defaulting shareholders.
- Market Stability: Helps stabilize the market by re-distributing shares to willing investors.
- Operational Efficiency: Provides an opportunity to correct the shareholder registry and improve company operations.
Applicability
- New Investments: Attracts new investors by offering shares at potentially lower prices.
- Rebalance Holdings: Allows existing shareholders to increase their stake in the company.
- Regulatory Compliance: Ensures compliance with financial regulations regarding share issuance.
- Forfeiture: The process by which a company seizes shares due to non-payment of dues by shareholders.
- Share Capital: Total value of the shares a company can issue.
- Par Value: The nominal value of a share as stated in the company’s charter.
FAQs
Who decides the re-issue price of forfeited shares?
The board of directors typically sets the re-issue price, taking into account market conditions and the company’s financial health.