Introduction

Shares issued to the public can be forfeited under certain circumstances. Forfeiture refers to the cancellation of shares by a company due to the non-payment of the required amount by shareholders. It is a legal process that allows the company to reclaim the shares and sell them to other interested investors.

Reasons for Forfeiture

There are several reasons why shares issued to the public may be forfeited:

1. Non-payment: If a shareholder fails to pay the required amount on the shares within the specified timeframe, the company may decide to forfeit the shares.

2. Breach of terms: If a shareholder violates any terms and conditions related to the shares, such as transferring the shares without prior approval or using them as collateral for a loan, the company may choose to forfeit the shares.

3. Non-compliance: If a shareholder fails to comply with any legal or regulatory requirements regarding the shares, the company may initiate forfeiture proceedings.

Forfeiture Process

The process of forfeiting shares issued to the public typically involves the following steps:

1. Notice: The company must issue a notice to the shareholder who has failed to pay the required amount or breached any terms. The notice should specify the default and provide a reasonable timeframe for rectifying the situation.

2. Resolution: If the shareholder fails to rectify the default within the given timeframe, the company can pass a resolution to forfeit the shares. This resolution should be approved by the board of directors or shareholders, as per the company's articles of association.

3. Forfeiture: Once the resolution is passed, the company can proceed with the forfeiture. The shareholder's rights associated with the shares, such as voting rights and dividends, are terminated. The shares are then canceled, and the shareholder is no longer considered a member of the company.

4. Sale or Reissue: The forfeited shares can be sold to new investors or reissued to existing shareholders or employees, depending on the company's policies and requirements.

Example of Forfeiture

Let's consider an example to illustrate the forfeiture process:

Company XYZ issued 1,000 shares to the public, with a face value of $10 per share. Mr. A purchased 100 shares but failed to pay the required amount within the specified timeframe. The company issues a notice to Mr. A, providing a 30-day period to pay the outstanding amount.

However, Mr. A does not comply with the notice, and the company passes a resolution to forfeit his shares. As a result, Mr. A loses his rights as a shareholder, and the 100 shares are canceled by the company. The company can then decide to sell these forfeited shares to other interested investors or reissue them to employees as part of an employee share ownership plan.

Conclusion

Shares issued to the public can be forfeited by a company under certain circumstances, such as non-payment or breach of terms by shareholders. The forfeiture process involves issuing a notice, passing a resolution, forfeiting the shares, and subsequently selling or reissuing them. Forfeiture allows companies to maintain control over their share capital and ensure compliance with legal and regulatory requirements.