FinTech Glossary

What Is a Forfeited Share

A forfeited share is a share that a company takes back from a shareholder due to non-payment of calls or instalments owed on that share. When shares are forfeited, the shareholder loses ownership rights, and the company cancels the shares as per its articles of association and applicable laws.

Business and Legal Context

Forfeiture of shares is governed by company law and the company’s internal rules, usually laid out in its articles of association.

It applies mainly to partly paid shares where the shareholder fails to pay the required amount within the specified time.

The process protects the company from financial loss and ensures fairness among shareholders by enforcing payment obligations.

How Share Forfeiture Works

1. The forfeiture process generally follows a defined sequence:
2. The company makes a call for unpaid share capital
3. The shareholder fails to pay within the stipulated time
4. A notice is issued demanding payment and warning of forfeiture
5. If payment is still not made, the board passes a resolution
6. The shares are forfeited, and ownership is cancelled

Once forfeited, the shareholder has no claim over the shares or the amount already paid