Disposal of forfeited shares

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

09 July 2012 DEAR FRIENDS I WANT TO KNOW THE PROCDURE FOR HOW TO DISPOSE OF THE SHARES WHICH ARE FORFEITED.. PLS HELP. ITS URGENT. AND HOW IT WILL GIVE EFFECT TO ITS PAID UP, ISSUED AND SUBSCRIBED CAPITAL

CS Divya Sorayan

CS Divya Sorayan (Expert)
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10 July 2012 U can reissue them to another existing shareholders on par, premium or discount,this is the simplest procedure or u can buy back them which is a time consuming procedure.

Querist : Anonymous

Querist : Anonymous (Querist)

13 July 2012 Dear mam,

can u pl tell me what is the buy back procedure for these shares as i want to reduce it from the issued capital of the company

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Asha Kanta Sharma online

Asha Kanta Sharma

(Expert)
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21 July 2024 When shares are forfeited by a company, it means that the shareholder who initially subscribed to the shares failed to meet certain obligations (like paying the call money). Here’s a detailed procedure on how forfeited shares are dealt with and how it impacts the company’s capital structure:

### Procedure for Disposal of Forfeited Shares:

1. **Forfeiture Process:**
- **Board Resolution:** The board of directors of the company passes a resolution to forfeit the shares due to non-payment of calls.
- **Notice to Shareholder:** A notice of forfeiture is sent to the shareholder informing them of the action taken and the amount due.
- **Cancellation of Shares:** After a specified period mentioned in the notice (typically 14-30 days), if the shareholder fails to pay the call amount and any accrued interest or penalties, the shares are forfeited.
- **Forfeiture Entry:** The company makes an entry in its books to cancel the shares and reduce the shareholder’s equity.

2. **Disposal of Forfeited Shares:**
- The forfeited shares can be sold or reissued by the company.
- **Sale:** The company may sell the forfeited shares in the market to new investors.
- **Reissue:** Alternatively, the company may reissue the forfeited shares to new shareholders.

3. **Effect on Capital:**
- **Paid-Up Capital:** Forfeited shares result in a reduction of paid-up capital of the company because the amount previously received from the shareholder (on account of shares) is canceled.
- **Issued Capital:** The number of shares issued decreases by the forfeited shares.
- **Subscribed Capital:** Subscribed capital remains the same initially, as it reflects the total amount of capital that shareholders have committed to pay.

### Buyback Procedure (Reducing Issued Capital):

If you want to permanently reduce the issued capital of the company through buyback of shares (including forfeited shares):

1. **Check Legal Requirements:** Ensure compliance with the provisions of the Companies Act and any other relevant regulations regarding buyback of shares.

2. **Board Resolution:** Pass a board resolution to approve the buyback of forfeited shares.

3. **Shareholder Approval:** Obtain approval from shareholders through a special resolution, if required by law.

4. **File with ROC:** File the necessary documents (like board resolution, special resolution, and Form SH-8) with the Registrar of Companies (ROC) as per the Companies Act.

5. **Payment:** Pay the shareholders the agreed buyback price for the forfeited shares.

6. **Cancellation:** Cancel the shares after completing the buyback process.

### Important Considerations:

- **Legal Advice:** It’s advisable to seek legal advice or consult a company secretary to ensure compliance with all legal requirements during the forfeiture and buyback process.

- **Accounting Treatment:** Properly reflect the forfeiture and buyback transactions in the company’s financial statements and maintain accurate records.

- **Impact on Share Capital:** Forfeited shares reduce the issued and paid-up capital immediately upon forfeiture. Buyback of shares further reduces the issued capital, thereby providing flexibility in managing the capital structure of the company.

By following these procedures, you can effectively manage forfeited shares and potentially reduce the issued capital through a buyback, ensuring compliance with regulatory requirements and enhancing the company’s capital management strategies.