Question

Answer in brief.

What are the effects of forfeiture of shares?

Answer 1

Forfeiture of Shares:

1. Forfeiture of Shares is a process where the company forfeits the shares of a member or shareholder who fails to pay the call on shares or installments of the issue price of his shares within a certain period of time after they fall due.
2. In other words, when the shareholder fails to pay the full amount of share which he agreed to pay in installments the company can cancel his shares.
   The effects of forfeiture of Shares are as follows:

The effects of forfeiture of shares are as follows:

1. Cessation of membership:
   - A person whose shares have been forfeited ceases to be a member in respect of forfeited shares.
   - The member's name removed from the Register of Members,
   - This is provided under regulation 32(1) of Table F of Schedule 1 of Companies Act, 2013.
2. Liability of Members:
   - The liability of a person whose shares have been forfeited comes to an end when the company receives the payment in full of all such money in respect of shares forfeited.
   - A member is liable for unpaid calls even after the forfeiture of shares.
   - This is provided in Regulation 32(2) of Table F.
3. Liquidation of the company:
   - In the case of, liquidation of the company takes place within one year of the forfeiture, then the liability of a former shareholder remains as a liability of a past member to pay calls.
   - In other words, if the company goes for liquidation, a member whose shares have been forfeited is liable to pay the calls as a past member.
4. Forfeited shares become the company's property:
   - The forfeited shares become the property of the company on forfeiture.
   - Accordingly, these may be re-issued or otherwise disposed of on such terms and in such manner which the board of directors thinks fit.
   This provided under Regulation 31(1) of Table F.