Forfeited Share: A Detailed Overview

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.

Types

• 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.

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

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.

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.

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