Accounting for Forfeiture of Shares
Meaning of Forfeiture of Shares
Whenever shareholder subscribes to shares, generally the total payment in respect of such shares, is required to be paid in various installments as under : –
- At the time of application ;
- At the time of allotment ;
- At the time of first call, second call our final call.
Whenever a shareholder fails to pay the amount due on allotment or any of the calls, within the specified time , the company can cancel the allotment of such shares i.e., the name of the shareholder is cancelled from the shareholders register. In such a case the amount already received is not returned to the shareholder. This act of the company is known as forfeiture of shares .
Shares can be forfeited only if the Articles of Association permit such forfeiture. Before the company can forfeit the shares, the defaulting shareholders has to be given a minimum of 14 days’ notice in order to pay the unpaid amount along with the interest thereon.