Forfeiture of Shares under Companies Act

2013
Understanding the Process and Legal Implications
 Introduction
• Forfeiture of shares is a legal process through
which a company cancels the shares of a
shareholder who fails to meet certain
obligations, as per the provisions of the
Companies Act 2013.
 Legal Framework
• The forfeiture of shares is governed by various
sections of the Companies Act 2013, including
Section 123, which provides the authority to
forfeit shares for non-payment of calls.
 Reasons for Forfeiture
• Shares may be forfeited for reasons such as
non-payment of calls, breach of terms and
conditions, or non-compliance with company
regulations.
 Board Resolution
• A board resolution is required to initiate the
forfeiture process. The board must pass a
resolution authorizing the forfeiture of shares.
 Notice to Shareholder
• After passing the board resolution, the
company must issue a notice to the
shareholder informing them of the intention to
forfeit their shares.
 Timeline for Payment
• The notice should provide a reasonable
timeline for the shareholder to rectify the
default, such as making the required payment
within a specified period.
 Shareholder's Rights
• Shareholders have certain rights and remedies
in case of forfeiture, including the right to
challenge the forfeiture and claim any surplus
proceeds from the sale of forfeited shares.
 Reissue of Forfeited Shares
• After forfeiture, the company may reissue the
forfeited shares to new shareholders through a
fresh allotment process.
 Capitalization of Forfeited Shares
• Forfeited shares are typically removed from
the company's capital structure, reducing the
total number of issued shares.
 Accounting Treatment
• The forfeiture of shares requires appropriate
accounting treatment, including recording the
forfeiture in the company's financial
statements.
 Record Keeping
• It is essential for the company to maintain
proper records of forfeited shares, including
documentation related to the forfeiture
process.
 Compliance Requirements
• The forfeiture process must comply with the
requirements specified under the Companies
Act 2013 and other relevant regulations.
 Legal Consequences
• Non-compliance with forfeiture procedures
may lead to legal consequences, including
penalties and legal disputes.
 Case Studies
• Examples of forfeiture of shares in real-world
scenarios can provide insights into the
practical application of forfeiture procedures.
 Documentation
• Various documents are required for the
forfeiture of shares, including board
resolutions, notices to shareholders, and
records of proceedings.
 Reporting to Authorities
• The company may be required to report the
forfeiture of shares to regulatory authorities,
such as the Registrar of Companies.
 FAQs
• Commonly asked questions and answers
related to forfeiture of shares can provide
clarity on the process for stakeholders.
 Best Practices
• Adopting best practices can help ensure
smooth forfeiture procedures and minimize
legal risks for the company.
 Conclusion
• In conclusion, forfeiture of shares is a legal
process that companies can utilize to address
non-compliance and protect the interests of
shareholders.