Forfeiture of shares

If a shareholder fails to pay allotment or a call, the company may forfeit (cancel) his shares, as its articles allow. He loses the shares, and the money he has already paid is kept by the company.

The forfeiture entry undoes what was recorded for those shares:

• Share Capital Dr. with the amount called up on those shares;
• To the unpaid allotment and calls accounts (or Calls in Arrears), with what was not paid;
• To Share Forfeiture with what was received.

Premium: if it was already received, it is not touched (it stays in Securities Premium). If it was due but not received, Securities Premium is debited with it too.

The Share Forfeiture balance is added to paid-up capital in the share capital note, until the shares are reissued.

Pro-rata applicants: first work out how many shares the defaulter applied for, and how much of his excess application money went to allotment, before finding what he still owed.

Example: 200 shares of ₹10, fully called, are forfeited for not paying the final call of ₹3. Share Capital Dr. 2,000; To Final Call 600; To Share Forfeiture 1,400.