Question

Why does a company forfeit shares?

Hint:

Remember the sequence: \emph{Default → Notice → Forfeiture → Possible Reissue}.

Answer 1

Step 1: Legal trigger.
If a shareholder fails to pay the amount due on allotment/calls, the Board—after serving a proper notice—may forfeit the shares as per Articles.
Step 2: Purpose/effect.
Forfeiture cancels the membership and amounts already received are transferred to Share Forfeiture A/c (capital profit), enabling reissue of those shares. It enforces payment discipline and protects existing shareholders.
Final Answer: \[ \boxed{\text{Non-payment of allotment/call dues (after notice) leading to cancellation of shares}} \] % Quciktip