If a shareholder, who is called upon to pay any call fails to pay the amount, even after sending many reminders the company may forfeit his shares. Thus forfeiture of shares means cancellation of shares.
Effects of Forfeiture:
- Cessation of Membership: On forfeiture, a member ceases to be a member of a company and loses all membership rights. The member’s name is removed from the Register of Members.
- Liability of Member: A member is liable for unpaid calls even after forfeiture of shares. The liability ceases only when the company reissues the forfeited shares.
- Liquidation of Company: If a company goes in for liquidation within one year of forfeiture of shares, the member whose shares have been forfeited is liable to pay the calls as a past member.
