A share is defined as, “a share in the sharecapital of the company and includes stocks”.

1. ISSUE AND FORFEITURE OF
SHARES

2. SHARES
A share is defined as, “a share in the sharecapital of the company and
includes stocks”
Share capital of the company is collected by issue of shares.
Share is one of the units into which total capital is divided.
The person who owns the share is called shareholder.

3. ISSUE OF SHARES
• Issue of shares is the process in which companies allot new shares to
shareholders.
• Shareholders can be either individuals or corporates.
• The company follows the rules prescribed by companies Act 2013
while issuing the shares.
• Issuing of shares in the means inviting the public to contribute to the
share capital of the company.

4. Shares of a company may be issued in any of the
following three ways:-
• Shares are issued at par
• Shares are issued at premium
• Shares are issued at discount

5. SHARES ISSUED AT PAR
• A company may issue shares at their face value or at a price other
than the face value. When shares are issued at a price equal to their
face value it is termed as shares issued at par.
• Eg:-

6. SHARES ISSUED AT PREMIUM
• When shares are issued at a price higher than the face value then it is
called as the issue of shares at premium. The excess of issue price
over the face is the amount of premium. The premium on issue of
shares is treated as revenue profit.
• Eg:-

7. SHARES ISSUED AT DISCOUNT
• When the shares are issued at a price lower the face value, they are
said to be issued at discount. A discount on issue of shares is treated
as a loss of capital nature.
• Eg:-

8. PROCEDURE FOR ISSUE OF SHARES
When company has been registered, the following procedure is
adopted by the company to collect money from the public by issuing of
shares.
• Issue of prospectus.
• Application of shares.
• Allotment of shares.
• Calls on shares.

9. 1) ISSUING PROSPECTUS
• A prospectus is a document used by a public company as an open
invitation to the public to buy shares of a company. A company must
submit a copy of its prospectus to the securities and exchange
commission before the publication date.
• A private company or a public company issuing shares privately do
not need to issue a prospectus.
• A prospectus gives brief information about the issuing company,
name of directors, past performance, terms of issue and the
investment for which the company raising capital.
• It also gives opening and closing dates of the shares issue, application
fee, allotment and on call dates, bank details.

10. 2) APPLICATION OF SHARES
• After reading the prospectus if the public is satisfied then they can
apply to the company for purchase of its shares on a printed
prescribed form. Each application form along with application money
must be deposited by the public in a schedule bank and get receipt
for the same.
• The application fee collected for share issue should be at least 5
percent of the nominal share amount.

11. 3) ALLOTMENT OF SHARES
• Allotments of shares means acceptance by the company of the offer
made by the applicants to take up the shares applied for.
• The information of allotment is given to the shareholders by a letter
known as “Allotment letter”, informing the amount to be called at
time of allotment and the date fixed for payment of such money.
Thus, the application money on the share after allotment becomes a
part of share capital.

12. 4) CALL ON SHARES
• The remaining amount left after application and allotment money
due from shareholders may be demanded in one or more parts which
are termed as ‘First call’ and ‘Second call’ and so on.
• A word ‘Final’ is added to the last call. The amount of call must not
exceed 25% of the nominal value of the shares and at least one
month have elapsed since the date which was fixed for the payment
of the last preceding call, for which at least 14 days notice specifying
the time and place must be given.

13. FORFEITURE OF SHARES
MEANING:-
If a shareholder fails to pay the due amount of allotment or any call on
shares issued by the company, the Board of directors may decide to
cancel his/her membership of the company . With the cancellation the
defaulting shareholder also loses the amount paid by him/her on such
shares.

14. PROCEDURE FOR VALID
FORFEITURE

15. 1. IN ACCORDANCE WITH THE ARTICLES OF
ASSOCIATION
• A company has no inherent power to forfeit shares. The power to
forfeit shares must be contained in the article of association.
• As per the English law, shares can be forfeited only for the non-
payment of calls money as a way of penalty for the non-payment of
such calls.
• Forfeiture on any other ground would be an illegal reduction of share
capital.

16. 2. Notice prior to forfeiture
Before the shares are forfeiture the shareholder-
• Must be served with a notice requiring him to pay the money due on
the call together with interest.
• The amount which is to be paid, should not be before 14 days from
the date of service.
• The notice must also state that if the shareholder fail to remit the
amount mentioned therein within the specified time, there share will
be forfeited.

17. 3. RESOLUTION OF FORFEITURE
• The notice alone does not operate forfeiture. The
directors have to pass a resolution at a board of
directors meeting, declaring the forfeiture.

18. 4. GOOD FAITH.
• The power to forfeit is a power of trust and the board must exercise
the same bonafide for the goods of the company, and not give some
personal advantage to a director or shareholder. Thus where the
shares are declared forfeited for the purpose of relieving a friend
from liability, the forfeiture may b kept aside.