Forfeited Shares refer to the shares that a company takes back from shareholders when they fail to pay the full amount due on those shares, such as unpaid allotment or call money. When investors subscribe to a companyís shares, they may be required to pay the amount in installments ó on application, allotment, and subsequent calls. If a shareholder fails to make these payments within the stipulated time, the company has the right to forfeit those shares as per its Articles of Association.

The process of share forfeiture begins with the company issuing a notice to the defaulting shareholder, specifying the unpaid amount and providing a final opportunity to make the payment. If the shareholder still does not comply, the companyís board can pass a resolution to forfeit the shares. Once forfeited, the shareholder loses all rights and ownership associated with those shares, including voting rights and dividends. However, the amount already paid by the shareholder before forfeiture is not refunded.

After forfeiture, the company can either reissue the forfeited shares to new investors at a later date or cancel them entirely. When reissued, these shares may be sold at a discount, provided the total discount does not exceed the amount forfeited. The accounting entry for forfeited shares involves transferring the unpaid amount to the ìShare Forfeiture Account,î which may later be adjusted against capital reserves if reissued.

Forfeited shares are significant in corporate accounting as they help companies recover losses from unpaid share capital. However, such situations can also signal poor financial management or investor commitment if they occur frequently. Therefore, companies often use this mechanism judiciously to maintain shareholder discipline and protect capital structure integrity.

In summary, forfeiture of shares is a formal process that enforces payment obligations on shareholders while ensuring that the companyís capital requirements are adequately met without financial disruption.