describe the effect of forfieture of shares
Answers
Answer:
Effects of forfeiture
Cessation of membership
A person whose shares have been forfeited ceases to be a member in respect of forfeited shares. This is provided under regulation 32(1) of Table F of schedule 1 of Companies Act, 2013.
Cessation of liability
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. This is provided in Regulation 32(2) of Table F.
However, notwithstanding the forfeiture of shares, shareholder remains liable to pay to the company all money which, at the date of forfeiture, were payable by him to the company in respect of forfeited shares. Thus, the liability of unpaid calls remains even after the forfeiture of shares.
Liability as past member
The liability of a former shareholder remains as a liability of a past member to pay calls if liquidation of the company takes place within one year of the forfeiture.
Forfeited shares become 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 an in such manner which the board of directors thinks fit. This provided under Regulation 31(1) of Table F.
In the same Regulation clause (2) provides that at any point of time before a sale or disposal of forfeited shares the board may cancel the forfeiture of shares in terms as they think fit.
Answer:
(i) Termination of Membership:
The shareholder, whose shares have been forfeited, shall cease to be a member of the company and his name shall be struck out from the Register of Members.
(ii) Liability:
If the articles of the company permit, the company can sue the member whose shares have been forfeited for unpaid calls even after forfeiture. In such a case the ex-shareholder will be liable as an ordinary debtor and not as a contributory. Suit for the recovery of the calls must be filed within three years of the date of forfeiture.
The company in such a case cannot recover more than the difference between the amount due on shares on the date of the forfeiture of shares and the amount received from the subsequent allottee (in case the forfeited shares have been re-issued).
(iii) List ‘B’ Contributory:
Where the company goes into liquidation within one year of the forfeiture of shares, the ex-shareholder can be put on “List B” of the contributories.
(iv) Disposal of Forfeited Shares:
Forfeited shares become the property of the company only for disposal and these may be resold at a discount, but the amount of discount cannot exceed the actual amount forfeited on those shares. Forfeited shares, however, shall never become the assets of the company. The purchaser of forfeited shares will acquire good title to the shares reissued to him.