Forfeiture of Shares

What are Forfeited Shares?

A forfeited share is a share in an enterprise that the owner suffers (forfeits) by failing to meet the buying requisites. Requirements may incorporate paying call money owed or allotment, or transferring shares during a restricted period or avoiding selling. When a share is forfeited, the member no longer owes any balance and abdicates any potential fund profit on the shares and the shares become the asset of the issuing enterprise.

It may occur that some shareholders might fail to pay installments, viz., allocation of money and/or call money. In such a scenario:

  • The enterprise can forfeit their shares, i.e., cancel their allocation and treat the amount that is already received hereon as forfeited to the enterprise within the groundwork of the provisions in its specific articles
  • For this purpose, they have to stringently follow the process laid down
  • When shares are forfeited, all the entries associated with the shares forfeited apart from those associated with premium, already mentioned in the accounting records must converse
  • Accordingly, share capital a/c is debited with the amount called-up with respect of shares that are forfeited and crediting the specific unpaid calls accounts or calls in arrears account with the amount that is already received

Hence, the journal entry will be as follows:

Forfeiture of Shares issued at Par:

Share Capital A/c (Called up amount) Dr.

To Share Forfeiture A/c (Paid up amount)

To Share Allotment A/c

To Share Calls A/c (individually)

(shares forfeited for non-payment of allotment money and calls made)

The above mentioned is the concept, that is elucidated in detail about Forfeiture of Shares for the class 12 Commerce students. To know more, stay tuned to BYJUS.