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Forfeited Share


A forfeited share is a company’s stock that an investor gives up due to non-compliance with certain terms and conditions outlined at purchase, such as not meeting a payment schedule for additional shares. The shares are then returned to the issuer for resale to generate capital. Forfeiture usually means the investor loses any amount already paid and rights associated with the share.


The phonetics of the keyword “Forfeited Share” can be written as: /’fɔrfitid ‘ʃer/

Key Takeaways

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  1. Forfeiture of Shares is a procedure where the shareholder loses his rights to shares due to non-payment of calls due on them. This includes the loss of dividend and voting rights, and the shares may be reissued to another buyer at a discounted price.

  2. Once shares are forfeited, the original shareholder has no claims on the dividends collected on those shares. The issuing company usually reserves the right to decide on the redistributed dividends to the subsequent shareholder.

  3. Forfeiture of shares can have a negative impact on a company’s reputation. Hence, companies usually exercise this right sparingly and with a comprehensive series of notices and reminders to shareholders about their dues.



Forfeited shares are crucial in the context of business and finance because they represent a form of disciplinary action or penalty employed by a corporation when a shareholder fails to meet their obligations, such as not paying for shares they have agreed to buy. These forfeited shares revert back to the corporation, which can then reissue or resell them, often at a discount, to recoup any lost funds. It is an important measure to enforce compliance and protect financial stability, particularly in situations of initial public offerings or fundraisers. Furthermore, the process of reissuing forfeited shares can also attract new investors, thus potentially providing an unexpected opportunity for business growth.


Forfeited shares refer to shares that are taken back by a corporation from a shareholder due to the non-fulfilment of certain obligations, most commonly non-payment of calls or default on installments due on partly paid shares. The purpose of such forfeiture is to protect the financial interests of the company and secure the continuation of operations. This action ensures that investors contribute their share towards the capital of the company and maintain financial discipline. In addition, the company has the right to further sell these forfeited shares in order to recover the money not paid by the original shareholder.The use of forfeited shares also enables a company to free up capital for other potential investors who are willing and capable of fulfilling the entire share purchasing process. Upon reissue, these shares can aid in raising additional capital for the company. The entire proceed from reissue of forfeited shares up to the face value of these shares can be used by the company in a manner it deems fit. Therefore, the forfeiture of shares and its subsequent reissue can serve not only as a punitive action but also as a resourceful way to optimize financial intake and maintain the company’s fiscal health.


Forfeited Share is a company share that a shareholder lost due to non-completion of the share purchase agreement conditions. It often happens when an investor fails to pay for the shares they committed to buying or defaults on installment payments.1. Windfall Gold Mining Company: This is a hypothetical example where an investor agreed to purchase stocks in the Windfall Gold Mining Company. The agreement stated that they would make payments in three installments. However, after the first payment, the investor was unable to pay the rest of the amount due to financial insecurities. As a result, the shares were forfeited according to the agreement.2. XY Telecommunications Inc.: In this scenario, a company issued partly paid shares which require shareholders to pay the full amount over a set period of time. One shareholder of XY Telecommunications failed to make those additional payments as required. The company decided to forfeit those shares and reissue them to regain the lost capital.3. ABC Real Estate Firm: A shareholder in a booming real estate firm defaulted on the payment due for their shares, citing bankruptcy. Rather than wait and hope for payment, the real estate firm chose to forfeit the shares, re-list them, and ultimately sell them to other interested parties.

Frequently Asked Questions(FAQ)

What is a forfeited share?

A forfeited share is a share that an investor loses due to non-compliance with certain regulations or requirements, typically the failure to meet scheduled payments for the shares purchased.

Why are shares forfeited?

Shares are usually forfeited when the shareholder fails to meet the financial obligations associated with the shares, such as non-payment of calls on shares.

What happens to forfeited shares?

Once shares are forfeited, the company often has the right to sell, re-issue, or otherwise dispose of them according to its articles of association.

Can forfeited shares be reissued?

Yes, forfeited shares can typically be reissued by the company at a discount, par, or at a premium depending on the market situation and the company’s regulations.

What is the process of share forfeiture?

Share forfeiture often involves a series of actions including sending a notice to the defaulting shareholder, resolving the forfeiture at the company’s Board meeting, and then updating the changes to the Register of Members in the company’s records.

Do shareholders get any compensation for forfeited shares?

No, when a share is forfeited, the shareholder typically loses all rights and any money they paid towards the shares. However, the conditions may vary depending on the company’s regulations.

Can a company prevent share forfeiture?

A company can possibly prevent share forfeiture by offering flexible payment options, sending reminders before the payment due date, and maintaining effective communication with the shareholders.

What are the legal implications of share forfeiture?

Share forfeiture can have legal implications as it involves the loss of property rights. It’s essential for companies to follow the process of forfeiture strictly as outlined in their articles of association to avoid potential legal issues.

Are forfeited shares considered equity or liability?

Forfeited shares, once reissued, are considered as equity. Until reissued or disposed of, they may be considered as neither a liability nor an asset. However, the treatment could vary depending on the specific accounting policies employed.

What is the impact of share forfeiture on a company’s reputation?

Frequent share forfeitures can potentially harm a company’s reputation as it may raise concerns about the company’s financial stability or the shareholders’ confidence in the company. However, if managed properly and transparently, it should not have a major impact.

Related Finance Terms

  • Share Capital: It is the total amount of money raised by a company by issuing shares to shareholders. Shares may be forfeited if the subscriber of shares fails to pay the calls on shares.
  • Call Payment: This is a demand by a company to its shareholders to pay all or part of the money that is still unpaid on their shares. Failure to make these payments can lead to share forfeiture.
  • Reissue of Forfeited Shares: Once a share has been forfeited, the company may choose to reissue it. Usually, the shares are reissued at a discount compared to its face value.
  • Articles of Association: It lays down the rules and regulations for internal management of a company. It may contain provisions related to the forfeiture of shares.
  • Equity: Equity refers to the ownership interest of shareholders in a corporation. Forfeited shares effectively reduce the equity stake of the owner in the company.

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