Question

What do you mean by forfeiture of shares?

Hint:

Non-payment of call/allotment money → company cancels the shares → shareholder loses membership and money paid → shares can be reissued.

Answer 1

Step 1: State when forfeiture arises:
Forfeiture of shares occurs when a shareholder who has been allotted shares fails to pay the amount due on allotment or on any subsequent call, despite the company issuing the required notices demanding payment.

Step 2: Explain the company's action and its consequence:
As authorised by its Articles of Association, the Board of Directors may cancel (forfeit) those shares — the defaulting shareholder loses membership, loses all rights attached to those shares, and forfeits whatever amount he had already paid on them (this amount is not normally refunded).

Step 3: State what happens to the forfeited shares afterward:
Forfeited shares become the property of the company again and can subsequently be re-issued to another person, often at a discount, subject to conditions laid down in the Companies Act.

Final Answer:
Forfeiture of shares is the cancellation of a shareholder's shares by the company, for non-payment of call/allotment money, resulting in loss of membership and forfeiture of amounts already paid, after which the shares may be re-issued.