Definition:
A forfeited share is a share that has been confiscated by the company due to non-payment of calls or installments by the shareholder.
What is forfeiture of shares?
Forfeited shares are shares on which shareholders have failed to pay the required amount, resulting in the company canceling their ownership and transferring the amount already received to the Share Forfeiture Account.
It occurs because of non-payment of share money.
The shareholder loses membership rights related to those shares.
Amount already paid is generally not refunded.
The company may later reissue the forfeited shares to another person.
Example of Forfeited Shares
A company issues shares of ₹100 each, payable as:
Application: ₹30
Allotment: ₹40
First and Final Call: ₹30
Mr. A receives 10 shares and pays the application money (₹300) and allotment money (₹400). However, he fails to pay the first and final call of ₹300 despite receiving a notice from the company.
As per the company's rules, the company forfeits Mr. A's 10 shares. As a result:
Mr. A loses ownership of the 10 shares.
Mr. A also loses the membership rights attached to those shares.
The ₹700 already paid (₹300 + ₹400) is not refunded.
The company can reissue these shares to someone else.
This is a case of forfeiture of shares due to non-payment of call money.
When does forfeiture happen today?
It is mainly seen in:
Rights issues: existing shareholders are offered new shares and must pay by certain dates.
Employee stock schemes (ESOPs): employees may lose unvested or unpaid shares under scheme rules.
Private companies and startups: founders, investors, or employees may receive shares subject to payment or vesting conditions.
Partly-paid shares: when shares are issued with payment due in installments rather than all at once.
Clauses to look out for in your share purchase agreement
If you're receiving or buying shares in a private company, startup, or employee plan, review clauses related to:
Calls on shares: when additional payments may be demanded.
Consequences of non-payment: whether shares can be forfeited.
Notice requirements: how much warning the company must give before forfeiture.
Reissue of forfeited shares: what happens after forfeiture.
Vesting and repurchase rights: especially for founders and employees.
Drag-along and tag-along provisions: not forfeiture clauses, but important ownership-related provisions.
Leaver provisions: what happens to shares if an employee leaves.
Articles of Association (AoA): forfeiture powers are usually contained here.
When you get the share purchase agreement, you can find the same information by getting answers to the following questions:
Are the shares fully paid or partly paid?
Can the company require future payments?
Under what exact circumstances can shares be forfeited?
Is there a cure period (e.g., 30 days to fix the default)?
Do I lose all amounts already paid if forfeiture occurs?
Definition:
A forfeited share is a share that has been confiscated by the company due to non-payment of calls or installments by the shareholder.
What is forfeiture of shares?
Forfeited shares are shares on which shareholders have failed to pay the required amount, resulting in the company canceling their ownership and transferring the amount already received to the Share Forfeiture Account.
It occurs because of non-payment of share money.
The shareholder loses membership rights related to those shares.
Amount already paid is generally not refunded.
The company may later reissue the forfeited shares to another person.
Example of Forfeited Shares
A company issues shares of ₹100 each, payable as:
Application: ₹30
Allotment: ₹40
First and Final Call: ₹30
Mr. A receives 10 shares and pays the application money (₹300) and allotment money (₹400). However, he fails to pay the first and final call of ₹300 despite receiving a notice from the company.
As per the company's rules, the company forfeits Mr. A's 10 shares. As a result:
Mr. A loses ownership of the 10 shares.
Mr. A also loses the membership rights attached to those shares.
The ₹700 already paid (₹300 + ₹400) is not refunded.
The company can reissue these shares to someone else.
This is a case of forfeiture of shares due to non-payment of call money.
When does forfeiture happen today?
It is mainly seen in:
Rights issues: existing shareholders are offered new shares and must pay by certain dates.
Employee stock schemes (ESOPs): employees may lose unvested or unpaid shares under scheme rules.
Private companies and startups: founders, investors, or employees may receive shares subject to payment or vesting conditions.
Partly-paid shares: when shares are issued with payment due in installments rather than all at once.
Clauses to look out for in your share purchase agreement
If you're receiving or buying shares in a private company, startup, or employee plan, review clauses related to:
Calls on shares: when additional payments may be demanded.
Consequences of non-payment: whether shares can be forfeited.
Notice requirements: how much warning the company must give before forfeiture.
Reissue of forfeited shares: what happens after forfeiture.
Vesting and repurchase rights: especially for founders and employees.
Drag-along and tag-along provisions: not forfeiture clauses, but important ownership-related provisions.
Leaver provisions: what happens to shares if an employee leaves.
Articles of Association (AoA): forfeiture powers are usually contained here.
When you get the share purchase agreement, you can find the same information by getting answers to the following questions:
Are the shares fully paid or partly paid?
Can the company require future payments?
Under what exact circumstances can shares be forfeited?
Is there a cure period (e.g., 30 days to fix the default)?
Do I lose all amounts already paid if forfeiture occurs?