The term ‘forfeiture’
actually means taking away of property on breach of a conditions. It is very
common that one or more shareholders fail to pay their allotment and/or calls
on the due dates, which results forfeiture of Shares. Forfeiture of Shares is the action taken by the company to cancel the
shares.
The directors are
usually empowered by article of association to forfeit those shares by serving
proper notice to the defaulting shareholder. When shares are forfeited, the
title of such shareholders is extinguished but the amount paid to date in not
refunded to him. The shareholder then has no further claim on company.
The power of forfeiture
must be excised strictly having regard to the rules and regulations’ provided
in the articles of association and it should be bona fide in the
interest of the company.
