• 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 Articles of Association. Otherwise Table-F of Schedule Iof 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 the register of members.
  • Calls in arrear 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’in the note of Share Capital, being part of Shareholders’ Funds shown under ‘Equity and Liabilities’ part of the Balance Sheet.
  • 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 the 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.
  • Whenever there is difference between number of shares forfeited and number of shares reissued, amount forfeited on reissued shares will be total amount forfeited divided by number of shares for forfeited multiplied by number of shares reissued.
  • Capital Reserve is shown in the Balance Sheet under the head ‘Reserves and Surplus’.   

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