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The issue of shares is the process where a company distributes new shares to investors to raise capital for business growth, debt repayment, or operational needs.
Why are shares forfeited?
Shares are forfeited when a shareholder fails to pay the required allotment or call money, leading to the cancellation of their ownership rights by the company.
What happens to forfeited shares?
Forfeited shares can be reissued by the company at a new price, and the forfeited amount is transferred to the capital reserve.
How does reissuing forfeited shares benefit a company?
Reissuing forfeited shares helps a company recover unpaid amounts, optimize capital utilization, and maintain financial stability.
Issue, Forfeiture and Re-Issue of Shares
Learn about issue, forfeiture, and reissue of shares in corporate accounting. Understand journal entries, financial impact, and key concepts for CA exams and business financial management.
Mridula Sharma7 Apr, 2025
Share
Public companies have multiple owners. You might have heard that these companies are listed on the stock exchange, allowing anyone to buy their shares. These shares represent ownership in a company and are called equity shares. A company's capital, which includes money or assets, is divided into these shares.
These shares can be transferred and owned by individuals or corporations, making the shareholders partial owners of the company. The process of issuing, forfeiting, and reissuing shares plays a vital role in managing ownership.
Share Capital is a key aspect of a company’s financial structure. It is also an important topic in the CA exams. Understanding share capital helps in learning how businesses raise funds and how it impacts their financial health.
Issue, Forfeiture, and Reissue of Shares
Understanding the issue, forfeiture, and reissue of shares is essential for grasping how companies manage their share capital. Below is a simple breakdown of these key concepts.
Issue of Shares
The issue of shares is the process by which a company distributes new shares to investors. This is primarily done to raise capital for business expansion, debt repayment, or operational needs.
Issuing shares allows a company to secure the necessary funds for growth while also improving its market presence. However, this process comes with regulatory requirements and costs that companies must comply with.
Forfeiture of Shares
Forfeiture of shares occurs when a company cancels a shareholder’s ownership due to non-payment of dues, such as allotment or call money.
If a shareholder fails to meet payment obligations, the company has the right to forfeit the shares, resulting in a loss of ownership and financial stake for that shareholder. This ensures financial discipline and fairness among all investors while maintaining the company's financial stability.
Reissue of Shares
The reissue of shares takes place when a company sells shares that were previously forfeited. This process allows the company to recover unpaid amounts and optimize capital utilization. By following proper legal and financial procedures, reissuing shares helps in maintaining a healthy financial position and ensures effective capital management.
Understanding these concepts is crucial for students and professionals in finance and commerce, as they form the backbone of corporate shareholding and investment strategies.
Issue, Forfeiture, and Reissue of Shares Problems and Solutions
Understanding the issue, forfeiture, and reissue of shares is crucial for accurate financial recording. Below are common scenarios with journal entries to help you grasp these concepts effectively.
Problem 1: Issue of Shares
Scenario: ABC Ltd. issues 2,000 shares with a face value of ₹10 per share. The payments are divided into three installments:
₹3 per share on application
₹4 per share on allotment
₹3 per share on the final call
Task: Record the journal entries for these transactions.
Problem 2: Forfeiture of Shares
Scenario: DEF Ltd. issued 1,000 shares with a face value of ₹10 per share. While most shareholders made full payments, one shareholder holding 100 shares failed to pay the final call of ₹3 per share.
Task: Pass the journal entries to record the forfeiture of these shares.
Problem 3: Reissue of Forfeited Shares
Scenario: The 100 forfeited shares from the previous case are reissued by DEF Ltd. at ₹8 per share.
Task: Prepare the journal entries for reissuing the forfeited shares and transferring the forfeited amount to the capital reserve.
Corporate Accounting Issue, Forfeiture, and Reissue of Shares
Corporate accounting plays a vital role in tracking and reporting a company’s share capital transactions. Accurate recording of issue, forfeiture, and reissue of shares is essential for financial transparency, regulatory compliance, and investor confidence.
Each transaction must be systematically documented in the company’s books to ensure clarity and proper financial management. This process not only upholds legal standards but also helps in making informed business decisions.
