How is net balance in share forfeiture account is calculated?
Answers
There are circumstances under which the shares of a stakeholder can be forfeited by the company under the provisions of the law. So what is done with the forfeited shares? And how are the previous accounting entries reversed? Let us take a look at the meaning and effect of forfeiture of shares.
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.
Explanation:
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