PROCEDURE FOR FORFEITING THE SHARES

When should the shares be forfeited?

If a member fails to pay any call money for the shares on the day appointed for payment thereof, the shares shall be forfeited by the company.

Prerequisites for forfeiture

·         Power in Articles of Association (AOA)-

The authority to forfeit the shares, in case of member failing to pay call money, should be expressly provided in the Articles of Association of the company under the head ‘Forfeiture of Shares’. If there is no such power mentioned in the Articles of Association, shares cannot be forfeited.

·         Board Resolution

·         Intimation to the Stock Exchange about the Forfeiture of Shares

The Board shall pass the resolution, for forfeiture and for the issue of notice to the defaulting member, without which forfeiture will not come into effect.

·         Issue of Notice-

The defaulting members should be issued a notice calling for money due, failing which their shares will be liable for forfeiture.

Six copies of the notice shall be forwarded to the Stock Exchange.

Course of Action

·         The list of defaulting members (who had not paid the call money due) shall be prepared.

·         The Stock Exchange should be informed about the Board Meeting regarding forfeiture of shares.

·         At the meeting of the Board, the Board may, upon passing a resolution for forfeiture and for issue of notice, serve a notice on the shareholder with acknowledgement due requiring him to pay such amount remaining unpaid.

·         Six copies of the notice should be sent to the Stock Exchange.

·         Notice shall state the amount due (with interest at a specified rate and the dividend- if the AOA provides) and a date at which the payment shall be made by the shareholder which shall not be earlier than 14 days from the date of issue of notice.

·         The Notice shall also state that in the event of non-payment of the money due on or before the date specified, the respective shares shall be liable to forfeiture.

·         If money is not paid at that date, the company may forfeiture the shares at anytime by passing a Board Resolution.

·         The person whose shares have been forfeited shall cease to be a member but shall be held liable to pay to the company all monies which are payable by him before forfeiture. However, liability shall cease if and when the company receives all the monies that were due.

·         The entry of forfeiture should be made in the Register of Members and the name of the concerned shareholder will be removed from the Register and the information regarding the forfeiture should be intimated to Stock Exchange.

·         The company may publish the notice of forfeiture in the newspaper.

·         The concerned shareholder should be informed about the forfeiture of his shares through registered post with acknowledgement due or by any means provided in the AOA.

·         Duly verified declaration in writing signed by the director or manager or company secretary of the company should be obtained, stating the shares forfeited and the date, which shall act as the conclusive evidence.

·         Subsequently, with the power mentioned in AOA, the forfeited shares may be sold or disposed off in such manner as the Board may think fit.