What is Forfeited Share?
281 reads · Last updated: December 5, 2024
A forfeited share is a share in a publicly-traded company that the owner loses (or forfeits) by neglecting to live up to any number of purchase requirements. For example, a forfeiture may occur if a shareholder fails to pay an owed allotment (call money), or if he sells or transfers his shares during a restricted period.When a share is forfeited, the shareholder no longer owes any remaining balance and surrenders any potential capital gain on the shares, which automatically revert back to the ownership of the issuing company.
Definition
Forfeited shares refer to shares in a publicly listed company that are lost (or forfeited) by a shareholder due to failure to meet any purchase requirements. For example, if a shareholder fails to pay the allotment money due (call money) or sells or transfers shares during a restricted period, it results in the shares being forfeited. When shares are forfeited, the shareholder no longer owes any balance and relinquishes any potential capital gains from the stock, with the shares automatically reverting to the issuing company's ownership.
Origin
The concept of forfeited shares originated from the development of corporate law and securities markets. As the joint-stock company system was established, the rights and obligations of shareholders became clearer. The forfeited shares system was designed to protect the interests of the company and other shareholders, ensuring the integrity of the company's capital.
Categories and Features
Forfeited shares are typically categorized into two types: voluntary forfeiture and involuntary forfeiture. Voluntary forfeiture occurs when a shareholder chooses not to fulfill purchase obligations, while involuntary forfeiture happens when specific conditions or requirements are not met, forcing the shareholder to forfeit. A notable feature of forfeited shares is that the shareholder loses ownership and any future rights to profits from these shares.
Case Studies
Case Study 1: During a rights issue, a company's shareholder failed to pay the subscription amount within the stipulated time, leading to the forfeiture of their shares. The company then reallocated these shares to other investors. Case Study 2: A shareholder illegally transferred shares during a restricted period, violating company regulations, which resulted in the company reclaiming and reissuing the shares.
Common Issues
Common issues investors face include: How to avoid share forfeiture? Typically, ensuring timely fulfillment of all financial obligations and compliance with company regulations is crucial. Another misconception is that forfeited shares can be reclaimed at any time; in reality, once shares are forfeited, shareholders usually cannot regain ownership.
