Question

7. What is a Forfeited Shares Account ? How and when it is closed?​

Answer 1

Forfeiture of shares is referred to as the situation when the allotted shares are cancelled by the issuing company.

Forfeited shares revert back to the issuing company, such as when an employee quits before stock options have fully vested.

Shares in publicly-traded companies that an owner loses or gives up by failing to honor certain purchase agreements or restrictions are considered to be forfeited.

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Answer 2

Forfeiture of Shares

When shares are allotted to an applicant, he and the company enter into a contract automatically. Then such an applicant is bound to pay the allotment money and all the various call monies till the shares are fully paid up. But if the shareholder fails to pay any of the calls (one or more) on the authorization of the board of Directors, the said shares can be forfeited. Forfeiture essentially means cancellation.

Before such forfeiture is done a notice must be given to the shareholder. The notice must provide the shareholder with a minimum of 14 days to make the payment due, or his shares will be forfeited. Even after such notice if the shareholder does not pay, then the shares will be canceled.

When the said shares are forfeited the shareholder ceases to be a member of the company. He loses all his rights and interests that a shareholder might enjoy. And once his name is removed from the register of shareholders he also losses all the money he has already paid towards the share capital. Such money will not be refunded.