Corporate Share Forfeiture: Process & Accounting Entries
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Understanding Share Forfeiture
Share forfeiture occurs when a shareholder fails to pay the required call money (either in part or full) on the shares issued to them. When this happens, the company may forfeit the shares as a means of canceling the unpaid shares and reclaiming the unpaid amount. This process is crucial for maintaining the integrity of a company's share capital.
The Share Forfeiture Process
- Failure to Pay Calls: If a shareholder does not pay the call money on shares within the prescribed time, the company can initiate the forfeiture process.
- Board Resolution: The company's board of directors must pass a formal resolution to forfeit the shares due to non-payment of calls.
- Notice of Forfeiture: A formal notice is sent to the defaulting