Reissue of forfeited shares

Forfeited shares can be reissued to new buyers, at par, at a premium or at a discount.

The discount on reissue cannot be more than the amount forfeited on those shares (the money the first holder lost). It is debited to Share Forfeiture.

Entry: Bank Dr. (cash received), Share Forfeiture Dr. (the discount), To Share Capital (and To Securities Premium, if reissued above par).

What is left in Share Forfeiture for the reissued shares is a capital gain, and it moves to Capital Reserve: Share Forfeiture Dr. To Capital Reserve. Only the gain on the shares actually reissued is moved; the forfeiture on shares not yet reissued stays where it is.

Capital reserve = amount forfeited on the reissued shares − discount on reissue.

Example: 300 shares of ₹10 are forfeited after ₹6 a share was received (1,800 forfeited). 200 of them are reissued as fully paid at ₹8: discount 200 × 2 = 400. Forfeited on those 200 = 1,200, so capital reserve = 1,200 − 400 = 800, and 600 stays in Share Forfeiture for the other 100 shares.

Buy-back (Section 68): a company may buy back its own shares, paid out of free reserves, securities premium, or a fresh issue of other securities. It may buy back at most 25% of its paid-up capital and free reserves, and afterwards its debt may be at most twice its equity (2:1).