Forfeiture of Shares in A Ltd.

In the case of A Ltd., 800 shares with a face value of Rs. 10 each have been forfeited. The shares were originally issued at a premium of 20%. Let's understand the concept of forfeited shares and how the forfeiture process works in a company.

What are Forfeited Shares?
Forfeited shares refer to the shares that are taken back by a company from its shareholders due to non-payment of the amount due or any other specified reasons. When a shareholder fails to pay the calls on shares, the company has the right to forfeit those shares. The forfeiture typically occurs when the shareholder fails to pay the call money within the specified time period.

Reasons for Forfeiture:
There can be several reasons for the forfeiture of shares, including:
1. Non-payment of call money within the specified time.
2. Breach of terms and conditions specified in the prospectus or allotment letter.
3. Non-compliance with statutory requirements.
4. Failure to provide necessary documents or information.

Forfeiture Process:
The forfeiture process generally involves the following steps:
1. The Board of Directors passes a resolution to forfeit the shares.
2. A notice is sent to the shareholder, specifying the reasons for forfeiture and the period within which the shareholder can rectify the default.
3. If the shareholder fails to rectify the default within the specified period, the shares are forfeited.
4. The forfeited shares are then treated as the property of the company and can be reissued or canceled.

Impact of Forfeiture:
When shares are forfeited, certain changes occur in the company's books, including:
1. The share capital account reduces by the forfeited amount.
2. The share forfeiture account is debited with the face value of forfeited shares and credited with the share capital account.
3. The amount paid by the shareholder on the forfeited shares is transferred to the share forfeiture account.
4. The share premium account is not affected by the forfeiture.

Conclusion:
In the case of A Ltd., 800 shares with a face value of Rs. 10 each have been forfeited. The company had originally issued these shares at a premium of 20%. The forfeiture process involves the company taking back the shares from the shareholders due to non-payment of the call money. The impact of forfeiture includes a reduction in share capital and the creation of a share forfeiture account.

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