Explain the requirements of a valid forfeitureof shares by a company?
Answers
Explanation:
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Answer:
A company can forfeit its shares only when the following conditions are satisfied:
1. Authority to Forfeit: The power to forfeit must be expressly given in the Articles. Accordingly, if no power is given in the Articles, no forfeiture can be made.
2. Default in Payment of Calls: The shares can be forfeited only for the non-payment of calls and not for the default in payment of any other debts.
3. In Accordance with the Articles: Forfeiture shall be valid only when the provisions of the Articles are strictly complied with. Even a slight deviation from the provisions shall render the forfeiture invalid.
4. Bonafide and for the Benefit of the Company: The right to forfeit shares is in the nature of trust and so it can be exercised bonafide and only for the benefit of the company. The power cannot be exercised hastly or for private ends.
5. Board Resolutions: Forfeiture will be effected only by means of a Board resolution.
6. Notice to Defaulting Shareholder: Notice precedent to forfeiture must be given to the defaulting shareholder. In the matter of forfeiture of shares, technicalities must be strictly observed.