Forfeiture of Shares

Forfeiture of Shares

When a shareholder, after being called upon to pay on any share call, fails to fulfill the payment, the company possesses two remedies against the shareholder:

Suing for the Amount

The company can initiate legal action against the shareholder to recover the unpaid call amount.

Forfeiture of Shares

Forfeiture involves the company revoking the shareholder's ownership of the shares as a penalty for non-payment of the call. However, the power to forfeit shares is contingent upon specific provisions in the articles granting such authority to the directors. Forfeiture must strictly adhere to the regulations specified in the Articles, encompassing notice requirements, procedural steps, and the manner in which it is executed, as established in cases like Re Esparto Trading Co. (1879) 12 Ch D 191. Directors must exercise the power to forfeit shares in good faith and for the benefit of the company. Upon forfeiture, the individual whose shares are forfeited ceases to be a member of the company.