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DEPARTMENT OF TECHNICAL EDUCATION

ANDHRA PRADESH
Name : N. Ramachandra Reddy
Designation : Head of CCP
Branch : DCCP
Institute : G.P.W; Warangal
Year/Semester : DCCP I YEAR
Subject Code : 104 Business Organization
Topic : Raising the Capital for Joint Stock
Company
Duration : 50 Mts
Sub Topic : Forfeiture of Shares
Teaching Aids : PPT, Pictures, Animations

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Objectives

On completion of this period, the student will be able to


know

1. Procedure of forfeiture of shares

2. Procedure of Re-allotment of shares.

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Recap

Allotment of Shares

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Calls on shares

 A call on shares is a demand by company on its


members to pay the whole or a part of the amount
unpaid on the shares hold by them
 A company does not usually insist on the full payment of
the issue price of the shares
 An intimation to its members is sent requesting them
to pay a specified sum of money on their partly paid-up
shares.
 This intimation is known as call on shares

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Forfeiture of shares :

 Shares of those members of a company, who fail to pay


the call-money on the agreed installments on fixed dates
can be forfeited by the directors of the company.
 Forfeiture means extinction of membership as penalty for
the non-payment of calls on fixed dates the board of
directors can forfeit the shares only when the Articles of
the company authorize them to do so

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 It is usual for every company to provide for such
eventuality in its Articles of Association

 The power to forfeit the shares is a very delicate right of


in the Board of Directors

 It is to be exercised in good faith and for the general


benefit of the company

 It should be noted that shares of a member can not be


forfeited for the non-payment of any other dues to the
company owed by him

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 Also the defaulting member must be given at least 14
days notice warning him that his shares are going to
be forfeited if he does not clear the dues in time

 This notice should be sent at his registered address

 These shareholders whose shares are forfeited cease


to be members of the company

 The amount already paid by them lapses to the


company and becomes its property

 The forfeited shares are transferred to an account


called “Forfeited Shares Account”, after the names of
the members are removed from the register of
members

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Re-allotment of shares :

 The shares forfeited or surrendered become the


property of the company

 It is left to the discretion of the Board of Directors


whether to reissue them or not

The directors are not bound to issue

 If no reissue is made, it amounts to permanent


reduction of capital

 But usually forfeited shares are reissued so that capital


of the company does not stand reduced

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 The forfeited shares can be reissued for any price as
per conditions prevail in the capital market

 Under no circumstances, however the reissue price


should be lower than the amount unpaid on the
shares

 In other words, the forfeited shares can be reissued at


discount or premium

 But if they are reissued at a discount, the discount


shall not be more than amount already paid on the
shares forfeited

 The purchaser of reissued shares will be liable to pay


the calls remaining unpaid at the time of forfeiture
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 He will get a better title to the shares so reissued to
him inspite of the defects if any in the procedure
followed for forfeiting the shares
 The re-issue of forfeited shares should be
sanctioned by the resolution at the Board’s Meeting
 There should be a statutory declaration by the
secretary or a director
 That all the formalities for forfeiture are compiled with
 The purchaser of reissued shares shall be given an
official receipt for the issue price paid
 Later the share certificate will be issued to him
and his name will be included in the Register of
Members
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Transfer of Shares :

 Transferability of shares is one of the merits


of joint stock companies

 No public company can absolutely restrict


the right of its shareholders to transfer their
interest in the company to others

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 Transfer to a minor

 Transfer of partly paid-up shares to a person who is


financially not sound, and

 Transfer of shares is effective only after it is


registered by the company

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Underwriting of shares :

 Defined as the ensuring the sale of the shares or debentures


of a company issued for subscription by the public

 For this purpose a public limited company enters into an


agreement with individuals or institutions like banks etc.,

 These individuals or institutions guarantee the sales of


shares or debentures offered for public subscription

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 This guarantee given by such individuals or institutions is
called underwriting and those giving such guarantee are
known as underwriters

 The underwriters are paid commission in return for such


guarantee which is called underwriting commission

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Summary

 Shares of the members of a company, who fail to pay


the call money or the agreed installments on fixed dates,
can be forfeited by the directors of the company
 The Board of Directors can forfeit shares only when the
Articles of the company authorize them to do so
 The forfeited shares are transferred to an account called
forfeited shares account
 Usually forfeited shares are reissued so that capital of
the company does not stand reduced
 The re-issue of forfeited shares should be sanctioned by
the resolution at the Board’s Meeting

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Quiz

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1. Who can forfeit the shares of a shareholder

1. Managing Director

2. Secretary

3. Manager

4. Board of Directors

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2. The Re-allotment of forfeited shares should
be sanctioned by the resolution at

1. Shareholders Annual General Meeting

2. Committee of Directors Meeting

3. Board of Directors Meeting

4. None of the above

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Frequently asked questions :

1. Write notes on

1. Forfeit of shares.

2. Re-allotment of shares.

2. Explain the procedure of re-allotment of shares.

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Assignment

1. Explain the procedure of forfeiture and re-allotment of


shares.

2. Explain briefly

1. Forfeiture of shares.

2. Re-allotment of shares.

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