A “forfeited share” refers to a partly paid share in a company that the shareholder has to forfeit due to the failure to make subsequent or final payments as required. Such shares must be sold or canceled by a public company, whereas a private company is not regulated in this respect.
Historical Context
The concept of forfeited shares has its roots in corporate law to ensure that shareholders meet their financial obligations. This concept emerged as companies began to issue shares as a means of raising capital and ensuring that shareholders complied with their payment commitments.
Types/Categories
- Partly Paid Shares: Shares for which the company has received only a part of the total amount due.
- Fully Paid Shares: Shares for which the full payment has been made.
Only partly paid shares can be forfeited.
Key Events
- Share Issuance: The company issues partly paid shares to shareholders.
- Call for Payment: The company calls for subsequent or final payments on these shares.
- Failure to Pay: The shareholder fails to make the necessary payments.
- Forfeiture: The company proceeds to forfeit the shares.
Detailed Explanations
Process of Share Forfeiture
- Call Notice: A notice is sent to the shareholder requesting payment.
- Non-Compliance: If the shareholder does not comply, another notice is sent warning of forfeiture.
- Board Resolution: The board of directors passes a resolution to forfeit the shares.
- Public Announcement: The forfeiture may be publicly announced, especially in the case of a public company.
- Re-issuance or Cancellation: The forfeited shares are either re-issued or canceled by the company.
Example
A shareholder is issued 1000 partly paid shares at $10 each. They pay $5 per share initially. Later, the company requests the remaining $5, but the shareholder fails to pay. After due notice, the company forfeits the shares.
Importance and Applicability
Forfeited shares protect the company’s financial integrity and ensure that all shareholders meet their obligations. This mechanism helps maintain equitable treatment among shareholders and supports the company’s capital structure.
Considerations
- Shareholder Rights: Forfeited shares usually result in the loss of shareholder rights such as voting and dividend entitlements.
- Company Bylaws: The process and consequences of forfeiture should be clearly stated in the company’s bylaws or articles of association.
- Legal Compliance: Companies must adhere to regulatory and legal requirements during forfeiture.
Related Terms
- Unpaid Shares: Shares for which the shareholder has not yet fully paid the agreed amount.
- Re-issue of Shares: The process of issuing forfeited shares to new shareholders.
- Capital Call: A request by a company for shareholders to pay remaining amounts due on partly paid shares.
Comparisons
- Vs. Fully Paid Shares: Fully paid shares cannot be forfeited as the shareholder has met all payment obligations.
- Vs. Surrender of Shares: Surrender occurs voluntarily, whereas forfeiture is a result of non-compliance with payment terms.
Interesting Facts
- Share forfeiture can lead to legal battles if shareholders believe the process was not conducted fairly.
- In many jurisdictions, forfeited shares must be re-issued at a minimum price to avoid undermining the market value of shares.
Inspirational Stories
A notable example is of a technology startup that managed to sustain its business by forfeiting shares of delinquent shareholders and reallocating these shares to committed investors, thus strengthening their capital base.
Famous Quotes
“The only way to ensure the integrity of a company’s capital is to hold every shareholder to their commitment.” – Anonymous
Proverbs and Clichés
- Proverb: “A deal is a deal.”
- Cliché: “You get what you pay for.”
FAQs
What happens to a forfeited share?
Can forfeited shares be reclaimed by the original shareholder?
Is forfeiture applicable to fully paid shares?
References
- Corporate Governance Manuals
- Company Law Textbooks
- Financial Regulations
Summary
Forfeited shares represent a crucial aspect of corporate finance, ensuring that shareholders fulfill their financial commitments to the company. This process not only supports the company’s capital structure but also maintains fairness and equity among all shareholders. Understanding the intricacies of forfeited shares is essential for investors, company directors, and anyone involved in corporate governance.
