Forfeiture And Surrender Of Shares

Forfeiture and surrender of shares are discrete theories that reflect unstable situations with precise results. Forfeiture is the condition where the company initiates the process, and in the surrender of shares, the shareholder has the control to start the proceedings. In both circumstances, the returning and allotment of shares are prohibited due to certain situations. In forfeiture, the allocation of shares is blocked due to non-payment practices for specific shares. In contrast, in the surrender of shares, the investor returns the shares to the company with free will to cross out their investment. 

Forfeiture of Shares

At the time of issue of any company’s shares, the stakeholder usually does not pay the entire amount; instead, they prefer to pay it in regular installments. However, the company has the authority to call for this allotment of shares when there is a capital requirement. Hence, forfeiture is the process where the company forfeits or blocks the issuance of shares to the shareholders if they fail to pay the price of the shares within the allotted time limit. 

The company’s shares will only be allotted to the individual if they pay the agreed price of the stakes, which was fixed at the time of share allotment. In such cases, the company’s articles must provide the complete authorization to forfeit the shareholder’s share. The distribution or forfeiture of the share is impossible if the company’s article authenticates the approval. 

In the forfeiture, the forfeited shares are added to the company assets even if it adds up. The stakeholders can reissue the forfeited shares, but it holds a different procedure from the previous allotment with the price difference. As the company’s shares are under the forfeited category, to a certain extent, it may adversely impact the company capital. Therefore, the authenticated bona fide and with scanned and verified court documentation is highly required under this condition. 

Procedure

• The forfeiture procedure requires the company’s articles conferring the regulated power within the director’s authority as it deprives the property of the stakeholder, including a penalty
• The forfeiture only takes place on the condition of no payment of the agreed share prices within the agreed time frame at the time of allotment of shares
• Companies attain distinct rules and regulations for forfeiture, including actions like penalty, resolution, articles, and notice

Surrender Of Shares

The surrender of share is the initiated step for the stakeholder, but unlike forfeiture, it does not attain any regulation of activities. Nevertheless, the effect of surrender of share and forfeiture are similar with certain markable dissimilarities. In the surrender of shares, the shareholder decides to surrender the shares to the company with immediate effect due to the inability to pay the installments and retain upcoming calls associated with the shares. 

The company can attain their condition and regulation to accept or reject the surrender of shares. On the director’s call and decision, the company can accept the surrender of shares to avoid the forfeiture situation predicted for the future. Presently, under any law, it is not acceptable to surrender the shares in the power of the shareholder. The company does not hold any authority to accept the surrendered stakes as per the law. 

Procedure

• As per the laws, no surrender of shares must be practised until the company considers the payment associated with the allotted shares
• Two conditions validate the surrender of shares: exchange of shares with the surrendered shares with similar valuation and surrender of shares take place at the edge of the forfeiture situation
• After the specific lapse of time, the surrender of shares must be considered illegal, and the company’s issuance of the shares can be regarded as invalid

Difference Between Forfeiture And Surrender Of Shares

There are some specific differences between the forfeiture and surrender of shares. These differences mark detailed illustrations in different cases. Hence below is the descriptive explanation of the significant differences.

Conclusion

In the forfeiture, the company initiates the action because of the non-payment of the call. Hence, the stakeholder will lose their investment along with their interest. But, on the other hand, the company has power for acceptance or rejection in case of surrenders of shares as it does not associate through any law. Hence the limitations and conditions are under the company’s interest and acknowledgement for both the procedures.