Question

_______may be said to be the compulsory termination of membership by way of penalty for non-payment of allotment and/or any call money.

• A. Surrender of shares
• B. Forfeiture of shares
• C. Transfer of shares
• D. Transmission of shares

Answer 1

The correct option is B Forfeiture of shares

Forfeiture of shares:-

Forfeiture of shares means cancellation of shares as such whatever amount has already been received on shares being forfeited is seized. The shareholder, who applies for the shares of the company makes an offer on the one hand, and on the other hand company by accepting or allotting shares accords acceptance. In this way, offer and acceptance with the lawful consideration makes a valid contract between the shareholder and the company. The contract makes it binding upon the shareholder to pay the installment of amount due on allotment and calls, whenever due.

Notice before Forfeiture:

If a member having been called upon to pay any call on his shares fails to pay the calls, the directors may either by adoption of Table A or by an express provision on the articles proceed to forfeit the shares held by such a defaulting member. Before the shares can be forfeited the company may serve a notice on the defaulting member requiring payment of the call.

The notice must give not less than fourteen days’ time from the date of service of notice for the payment of the amount due. The notice must also state that in the event the non-payment of the amount due within the period mentioned in the notice the shares in respect of which call was made will be liable to forfeiture.

Non-compliance of Notice:

If the shareholder fails to comply with the requirement of this notice, the directors may pass a resolution effecting the forfeiture of the shares.

Effect of Forfeiture:

When the shares have been forfeited, the defaulting shareholder ceases to be member of the company and he loses all rights or interests in his shares. But notwithstanding the forfeiture he remains liable to pay to the company all moneys which at the date of forfeiture were payable by him to the company in respect of the shares.