Accordingly, shares of members cannot be forfeited unless the articles of the company confer such power on the directors. Surrender of Shares After the allotment of shares, sometimes a shareholder is not able to pay the further calls and returns his shares to the company for cancellation. Further, the board of directors passes a resolution to make the first call of Rs 20, which is duly received by the company. The company set up its amount on the share as Rs. Shares are forfeited when a shareholder fails to meet an obligation under which the shares were issued to that person. The issue was fully subscribed for. Entries for the above mentioned illustration under this method will be as follows:- 1.
Manoj comes and pleads with the company to cancel the forfeiture of shares after the reissue of the forfeited shares to Mr. Thus, on this share, a sum of Rs 80 has been called and paid up. The shares are then again owned by the original shareholder. Re-issue of Forfeited Shares Normally, the forfeited shares are reissued as fully paid and at a discount. Transaction Journal Entry Amount 1. A preferential allotment is one that is made at a pre-determined price to the preidentified people who wish to take a strategic stake in the company such as promoters, venture capitalists, financial institutions, buyers of companies products ore its suppliers.
The notice threatening forfeiture as contemplated in Regulation 29 of Table A must be served in accordance with the provisions of section 53 of the Companies Act, 1956. The board of directors are required to pass a resolution for making a call on shares. Bonafide and for the Benefit of the Company: The right to forfeit shares is in the nature of trust and so it can be exercised bonafide and only for the benefit of the company. A company can forfeit shares according to the provisions given in its articles. But the loss on reissue cannot exceed the gain on forfeiture of the share reissued. However, a sum of Rs 20 still remains uncalled on the share. After the shares are forfeited, they may be either disposed of or they may be reissued to some other person.
Regulation 31 provides that if the requirements of any such notice as aforesaid are not complied with, any share in respect of which the notice has been given may, at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. For this reason, the forfeiture or shares is most likely to be carried out by public limited companies rather than by private companies. But even fully paid shares may be surrendered if they are to be exchanged for new shares having the same face value. Our mission is to provide an online platform to help students to discuss anything and everything about Essay. Board Resolutions: Forfeiture will be effected only by means of a Board resolution. If the call money is not paid in response to such notice threatening forfeiture, the company may, at any time thereafter, before the payment required by the notice has been made, forfeit the shares by a resolution of the Board to the effect. Examination of Outstanding calls: He should verify the amount of calls outstanding on the shares forfeited with the help of the Share Register and Schedule of calls-in-arrears.
Prepare the Journal, the Cash Book, the Ledger and the Balance Sheet on the basis of the information given above. They can re-issue the forfeited shares at par, at premium or at discount. A notice has to be served on the defaulter requiring him to pay the unpaid amount together with interest accrued by a certain date. Illustration 1: The shares of a company have a face value of Rs 100. The journal entry in this case can be shown as: No. The directors may include such other terms as they think fit.
Not all applicants receive allotment letters, unsuccessful applicants receive regret letters and their application money given back. Issue of shares for cash: When the shares are issued by the company in consideration for cash such issue of shares is known as issue of share for cash. Half of these shares were reissued as fully paid up Rs 8 per share. If a share is reissued at a loss, on reissue Bank is debited with cash received, Forfeited Shares Account is debited with loss suffered or discount allowed and Share Capital Account is credited will the total of the two amounts which is the paid up value of reissued shares. On application Rs 30 On allotment Rs 40 including premium On first and final call Rs 40 Applications were received for all the shares offered and allotment was duly made. The power of forfeiture of shares must be exercised bona fide and in the interest of the company. The forfeiture will generally include all dividends or other monies payable in respect of the forfeited shares and not paid before the forfeiture.
The notice must; - specify clearly the amount payable on account of unpaid call money as well as interest accrued , if any, and other expenses. In order that the forfeiture of shares is valid, the procedure expressly prescribed by the articles must be strictly adhered to. This process is nothing but the shareholder entering into a contract with the company as the offer and acceptance along with some consideration become a valid contract between him and the company. Forfeiture of Shares issued at a Premium: 1. These provisions are based on the regulation 29 to 35 in Table A of Schedule I to the Companies Act, 1956 or recast based on the regulations.
The Company is now entitled by Articles. Transaction Journal Entry Amount 1. If nothing is mentioned in the articles, then the provisions laid down in Articles 13-18 of Table A are applicable while making calls. Effect of Forfeiture A person whose shares have been forfeited shall cease to be member in respect of the forfeited shares, but shall, shall, notwithstanding the forfeiture, remain liable to pay to the company all moneys which, at the date of forfeiture, were presently payable by him to the company in respect of the shares. Journalise the entries for forfeiture. Regulation 30 state that the notice aforesaid shall specify a further day not being earlier than the expiry of fourteen days from the date of service of the notice on or before which the payment required by the notice is to be made and should state that, in the event of non-payment on or before the day so named, the shares in respect of which the call was made will be liable to be forfeited. Notice Precedent to Forfeiture: A default in the payment of calls does not ipso facto bring about forfeiture.
The company gave prescribed time period and notice to Manoj and even after that he failed to pay the money. Once the shares are forfeited, they may be either cancelled or reissued to some other person. Then, Forfeited Shares Account is debited and Share Allotment Account and various call accounts or Calls in Arrear Account are credited with the amount not received in respect of forfeited shares; it leaves a balance in Forfeited Shares Account which is equal to amount received in respect of forfeited shares. The company may call up this amount any time in the future. Shares are said to be under-subscribed when the number of shares applied for is less than the number of shares offered, but at least minimum subscription According to the guidelines issued by S. However, if the shares are re-issued at discount, the amount of the discount does not exceed the amount paid on such shares by the original shareholder but in case of shares originally issued at a discount, the maximum permissible discount will be amount paid on such shares by the original shareholder plus the amount of original discount. In these instances the former shareholder is likely to lose all rights from the shares and is unlikely to be entitled to receive any amount if the forfeited shares are subsequently sold by the company.