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Forfeited Share
A forfeited share is a share that is surrendered (forfeited) by a shareholder as a penalty for violating the company’s rules or regulations, such as failing to pay dividends or other financial obligations on time.
Reasons for forfeiture:
- Non-payment of dividends or other financial obligations
- Violation of company’s rules or regulations
- Transferring shares without authorization
- Insider trading
- Manipulation of company’s securities
Procedure:
- Notice of forfeiture: The company will issue a notice of forfeiture to the shareholder, outlining the reason for forfeiture and the specific shares that are being forfeited.
- Forfeiture: The company will record the forfeiture of the shares in the company records.
- Resale or cancellation: The company may resell the forfeited shares or cancel them altogether.
- Refund or distribution: If the forfeited shares are resold, the proceeds from the sale will be refunded to the shareholder or distributed to other shareholders as directed by the company’s bylaws.
Example:
A shareholder fails to pay their dividends on time. As a result, the company issues a notice of forfeiture and forfeits the shareholder’s shares. The forfeited shares are then resold, and the proceeds are refunded to the shareholder or distributed to other shareholders.
Note:
- The specific rules and procedures for forfeiture may vary depending on the company.
- Forfeited shares are usually sold in the open market or through a private sale.
- The company may impose a penalty or fine on the shareholder for forfeiting their shares.
