Question

Explain the term ‘Forfeiture of Shares’.

Answer 1

Forfeiture of shares means the cancellation of shares and termination of membership by the company due to the non-payment of allotment money or call money by a shareholder.

According to Table F of the Companies Act, 2013, the statutory procedure is as follows:

1. 14 Days’ Notice: The company must send a minimum of 14 days’ written notice to the defaulting shareholder, requiring payment of the outstanding call money together with interest.
2. Board Resolution: If the shareholder fails to pay within 14 days, the Board of Directors passes a formal Board Resolution to forfeit the shares.
3. Seizure of Money: The amount already paid by the shareholder on these shares is confiscated (seized) by the company and transferred to the Share Forfeiture Account. This money is not refunded.
4. Removal from Register: The shareholder’s name is officially removed from the Register of Members.