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Question
Answer in brief.
What are the effects of forfeiture of shares?
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Solution
Forfeiture of Shares:
- 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.
- 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:
- 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. - 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. - 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. - 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.
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RELATED QUESTIONS
The balance of Share Forfeiture A/c is transferred to _________ account after re-issue of these share.
When shares are forfeited the Share Capital Account is _________.
State true or false with reason.
Directors can forfeit the shares for any reason.
Pass Journal entries for the forfeiture and re-issue of shares in the following cases.
A) Asha Ltd. forfeited 100 equity shares of ₹ 20 each fully called up for non-payment of first call of ₹ 3 per share and final call of ₹ 5 per share. 80 shares of these were reissued at ₹ 15 per share fully paid
B) Bhakti Ltd. forfeited 100 equity shares of ₹ 10 each, ₹ 6 called-up on which the shareholder paid application and allotment of ₹ 5 per share. Of these 80 shares were re-issued as fully paid-up for ₹ 6 per share.
C) Konark Ltd. forfeited 50 shares of ₹ 10 each, ₹ 8 called-up. The shareholder failed to pay first call of ₹ 3 per share. Later on 30 shares of these were re-issued at ₹ 7 per share.
Select the correct answer from the options given below and rewrite the statement.
Company can ______ shares on non-payment of calls.
Write a word or a term or a phrase which can substitute the following statement.
Penal action taken by company on non-payment of calls.
Complete the sentence.
Company can forfeit only ______ paid shares.
Correct the underlined word and rewrite the following sentence.
Only fully paid up shares can be forfeited.
Study the following case/situation and express your opinion.
Red Tubes Ltd. has made a demand on its shareholders to pay the balance unpaid amount of ₹ 20/- per share (having a face value of ₹ 100) held by them. The company has sent letters asking the shareholders to pay the money to its Bankers within the specified time.
- Are the shareholders liable to pay ₹ 20 for the shares held by them?
- Name the letter sent by the company to its shareholders asking them to pay ₹ 20/-
- What happens if a shareholder fails to pay the money within the specified time?
Study the following case/situation and express your opinion.
X owns 100 shares while Y owns 500 shares of Red Tubes Ltd. The company has asked all its shareholders to pay the balance unpaid amount of ₹ 20. X pays the full money demanded by the company. Y, who is in a bad financial position is unable to pay any money.
- Can the company forfeit the shares of Y?
- Can the company forfeit the shares of X?
- Can X transfer his shares?
Justify the following statement.
Board of Directors have the authority to forfeit shares.
Vraj Ltd. issued 40,000 equity shares of ₹ 20 each payable as follows:
On Application: ₹ 4
On Allotment: ₹ 6
On First Call: ₹ 6
On Second Call: ₹ 4
The company received applications for 50,000 equity shares. Allotment of shares was made on pro-rata basis. Share allotment and calls were made and as also received except Ravi holding 100 shares failed to pay both the calls. His shares were forfeited after second call.
Record the above transactions in the books of Vraj Ltd.
The Subscribed Capital of Parag Limited is 30,000 equity shares of ₹ 100 each and 50,000 preference shares of ₹ 100 each. On both of these shares ₹ 80 per share were called-up.
The Directors forfeited 500 equity shares held by Ashish who failed to pay First and Second Call each of ₹ 20 per share. They also forfeited 500 preference shares of Ashok who failed to pay ₹ 20 per share on Allotment, ₹ 20 per share on First call and ₹ 20 per share on Second call.
The Director re-issued these forfeited shares of Ashish at ₹ 60 per share, ₹ 80 paid up and those of Ashok at ₹ 72 per share ₹ 80 paid up. All re-issued shares were taken up by Anagha.
Pass Journal entries to record the forfeiture and re-issue of shares in the books of Parag Ltd.
Only fully paid-up shares can be forfeited.
Find the odd one.
