Accounting for Share Capital
Shares of defaulting shareholders who fail to pay the amount due on allotment or on any call within the specified period, may get cancelled by the directors. This is known as forfeiture of shares. This can be done only if it is specified in the Articles of Association. Otherwise Table F of Companies Act, 2013 shall apply. For forfeiture, defaulting shareholders are given the minimum notice of 14 days. In the event of non- payment, the shares are forfeited and name of shareholder is removed from register of members. Calls in arrears are deducted from ‘Subscribed but not fully paid up capital.’ Unless the forfeited shares are reissued, balance of shares forfeited account is added to ‘Subscribed Capital.’
The forfeited shares can be reissued at par, premium or discount. But in case of discount, discount cannot exceed the amount already received on these shares at the time of forfeiture. If the discount on reissue is less than the amount forfeited, the surplus of share forfeiture is transferred to Capital Reserve. In case shares are reissued at par or premium, then the whole amount forfeited on such shares is transferred to Capital Reserve. The treatment in case of forfeiture of shares that were originally issued at premium is different in cases of premium received and premium not received.