Forfeiture of Shares:- Forfeiture may be termed as penalty for violation of terms of contract. Forfeiture of shares means taking back of shares by the company from the shareholders. If the shareholder makes default in payment of calls on shares, then the company can use their option of forfeiting the shares. For a valid forfeiture, satisfaction of following conditions is necessary: –
1. Articles of Association must authorise the forfeiture of shares.
2. The shares must be forfeited according to the conditions mentioned in the Articles of Association.
3. The forfeiture must take place in the bonafide interest of the company. All the conditions must be satisfied. Any irregularity in the forfeiture of shares will make it invalid.
The company must serve a notice of at least 14 days to the defaulting shareholder. If the shareholder or member of the company fails to make the payment on unpaid calls within the stipulated time, then the company may forfeit the shares. The name of the shareholder is removed from the Register of Members after the forfeiture of shares. The company is not under any obligation to pay back the money already received on shares. The company can re-issue the forfeited shares.