Forfeiture of shares refers to the situation when a shareholder loses or gives up their shares in a publicly-traded company by failing to honor certain purchase agreements or restrictions. The shareholder may forfeit their shares if they fail to pay an owed allotment (call money), or if they sell or transfer their shares during a restricted period. When a share is forfeited, the shareholder no longer owes any remaining balance and surrenders any potential capital gain on the shares, which automatically revert back to the ownership of the issuing company.
The process of share forfeiture involves the company, which monitors compliance and maintains accurate records of all transactions, including forfeitures. Forfeited shares are often seen as a last resort for companies to enforce the payment of the required amount from defaulting shareholders.
Forfeited shares can occur due to various reasons, including failure to meet payment obligations, breaching share-related restrictions, or an employee exiting the company before their stock options fully vest. If an employee quits the company before a certain mandatory waiting period, they may be obligated to forfeit any shares they purchased.
In the event of forfeiture of shares, the shareholder loses the rights and interests of being a shareholder and ceases to be a member of the organization. The company can sell or reissue the forfeited shares to a new shareholder.
