Difference between Forfeiture and Surrender of Shares

Surrender of Shares and Forfeiture of shares are distinct processes in corporate governance. Forfeiture occurs when a shareholder fails to meet financial obligations, such as paying calls on shares, prompting the company to reclaim the shares. It is an involuntary action governed by legal and procedural frameworks to maintain financial discipline and compliance with company rules. In contrast, the shareholder's surrender of shares is a voluntary decision to relinquish ownership, typically initiated for personal reasons, strategic shifts, or financial planning. This process involves the shareholder returning their shares to the company without transferring them to another party.

Forfeiture of Shares

Procedure Of Forfeiture Shares

• Issuance of Notice : The company issues a notice to the shareholder who has failed to pay the required calls (payments on shares). This notice specifies the amount due and a deadline by which the payment must be made to avoid forfeiture.
• Resolution by Board : If the shareholder does not make the payment within the specified time frame, the board of directors convenes a meeting and passes a resolution for the forfeiture of the shares.
• Forfeiture Announcement : The shareholder is notified of the board's decision to forfeit the shares. This notice includes details such as the number of shares forfeited, the reason for forfeiture, and the effective date of forfeiture.
• Cancellation of Shares : The company cancels the forfeited shares. This means the shareholder loses ownership rights and has no claim to the forfeited shares.
• Resale or Allotment : The company may choose to resell the forfeited shares to new shareholders or allot them to existing shareholders as per the provisions in the company's articles of association.
• Accounting Entries : The company updates its records to reflect the forfeiture of shares and any subsequent actions, ensuring accurate financial reporting.
• Notification to Authorities : The company may need to notify regulatory authorities or update its filings to reflect the changes in share ownership resulting from the forfeiture.

What is the Surrender of Shares?

Procedure of Surrender of Shares

• Issuance of Notice : Initially, the company issues a notice to the shareholder regarding the outstanding amount and a deadline for payment. This notice serves as a formal request to fulfill the financial obligations related to the shares.
• Board Resolution : If the shareholder does not settle the dues within the stipulated period, the board of directors convenes a meeting. During this meeting, a resolution is passed to forfeit the shares due to non-payment. This decision is recorded in the minutes of the meeting.
• Notification to Shareholder : Following the board resolution, the shareholder is formally notified of the decision to forfeit their shares. The notification specifies the number of shares to be forfeited, the reason for forfeiture, and the effective date of forfeiture.
• Cancellation and Reissue : The company cancels the forfeited shares. Depending on the company's articles of association and applicable laws, these shares may be reissued or sold to new shareholders.
• Documentation and Compliance : The company maintains proper documentation of the forfeiture process. This includes updating shareholder records, accounting entries reflecting the forfeiture, and compliance with regulatory requirements.

Difference between Forfeiture and Surrender of Shares

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