What is Forfeiture of Shares?
Forfeiture of shares refers to the process by which a shareholder loses their ownership rights in a company due to non-payment of a call made by the company. This means that the company can take back the shares that have not been fully paid for by the shareholder.
How Does Forfeiture of Shares Work?
When a company issues shares, shareholders are required to make payments towards the subscription price. If a shareholder fails to make the payments as per the agreed terms, the company has the right to forfeit the shares. Once the shares are forfeited, the shareholder loses all rights attached to the shares, including voting rights and dividend entitlement.
Examples of Forfeiture of Shares
For instance, if a shareholder fails to pay the final installment on their shares, the company may issue a notice to the shareholder informing them of the forfeiture of their shares. If the shareholder still does not make the payment within the specified time frame, the company can proceed with the forfeiture process.
Case Studies on Forfeiture of Shares
- In the case of R v. Tarn Paints Ltd, the court held that the forfeiture of shares was valid as the company had followed all necessary procedures and guidelines.
- In another case, ABC Ltd forfeited the shares of a shareholder who failed to pay the call money. The shareholder challenged the forfeiture in court but lost the case as the company had adhered to the terms of the agreement.
Importance of Forfeiture of Shares
Forfeiture of shares is an important mechanism for companies to ensure that shareholders fulfill their financial obligations. It also helps in maintaining the financial stability of the company by preventing free-riding and ensuring fair treatment of all shareholders.
Conclusion
Forfeiture of shares is a legal provision that gives companies the right to reclaim shares from shareholders who fail to make payments as agreed. It is a crucial tool for companies to maintain financial discipline and protect the interests of all shareholders.
