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Under what circumstances can shares be forfeited?
A shareholder is liable to forfeiture of shares when he fails to pay either the allotment or call money in accordance with the stipulated time and conditions of the company. Such failure is violation of the agreement made between shareholder and company, leading to forfeiture.
Are forfeited shares immediately eligible for re-issuing?
Yes, once shares are forfeited, the company can reissue them. However, this action must be done in accordance with the Articles of Association as well as the applicable provisions of the law. The reissue may be at such price as the board of directors may determine, but will in general not be lower than the amount of forfeiture value unless otherwise authorized by regulations.
Is any compensation provided to shareholders for forfeiture of their shares?
Under normal circumstances, no. Anything paid on account of the forfeited shares prior to forfeiture is also forfeited. Thus, the shareholder loses all claims over those shares.
What are the legal effects of forfeiture of shares?
A company must ensure that the process of forfeiture is in accordance with the Article of Association and other laws. The improper forfeiture gives raise legal disputes wherein affected shareholders might challenge the forfeiture in the court of law. Following the prescribed procedures is crucial for avoiding such disputes.
How is the reissue price of forfeited shares fixed?
The board of directors of the company is the one who fixes the price at which the forfeited shares are likely to be reissued. It is important that the issued price is attractive enough to positively entice buyers while at the same time recover quite a lot of capital. Even though the shares can be reissued through a discount even less than its face value (provided it is greater than equal to the forfeiture price), still, the price has to comply with any legal or regulatory requirement imposed by corporate government's standards.