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Issue Forfeiture Reissue of Shares

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Oversubscription and Forfeiture of Shares


The ownership of a firm or a company is divided into several units known as shares. Shares tend to represent a part of the company and hence, the shareholder is regarded as a part owner. These shares are issued by the respective company itself. However, if there is a non-payment of the call money, there occurs forfeiture of shares and reissue of shares.

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If a public company invites people for applying and subscribing to its shares, then the company has to issue a Prospectus. Hence, a Prospectus is known as an advertisement carried out by the company for applying for its shares. It comes with a share application which is attached to it. Therefore, if the company decides to issue shares to the public, there can be basically three types of possibilities.


1. Full Subscription:

Full subscription occurs if the number of the total shares that the company offers to the public and the total number of shares for which the applications are received are the same.


2. Under Subscription:

Under subscription happens if the number of the total shares that the company offers to the public is higher when compared to the total number of shares for which the applications are received. In this situation, the company can allot shares only if it receives Minimum Subscription.


Minimum Subscription refers to 90% of the total number of shares which a company offers to the public. If the company does not receive a Minimum Subscription, then it needs to refund the application amount to the applicants.


3.Over Subscription:

Over Subscription occurs when the total number of the shares which the company offers to the public is lesser when compared to the total shares for which the applications are received. In this situation, the company would decide to make a pro-rata allotment to the applicants of the shares.


Forfeiture of Shares Issued at Discount

In simpler words, a share refers to a portion of a bigger thing. Hence, when it comes to the share market, share refers to a small proportion of the total capital amount of the businesses. Shares tend to form the major source of finance of any given company.


Shares also tend to tempt the investors since they give huge amounts of profits to them, which is so unlikely the case in fixed rate return on debentures. There are several prices or ways in which the company can issue its shares such as at discount, at par, and at premium.


Issuing the shares at a discounted rate means that the issue of the shares is at a price which is lesser than its face value. Consider, for example, that the company issues one share of Rs. 100 at a discounted rate of Rs. 90. Then (Rs. 100 - Rs. 90) Rs. 10 here refers to the amount of discount offered.


This refers to nothing but the loss of the company. Also, it is important to remember that if the issue of the share is below its Market Price, or MP, but it is above the Face Value or FV, then it is not regarded as an issue of share at a discounted price. The issue of the shares at a discounted rate would always be below its Nominal Value, or NV. The company would debit it to a different account which is known as the Discount on Issue of Share.


Forfeited Shares Issued at Premium

When the shares are issued at premium, it means that the issue of shares is at a higher price than its face value. In simpler words, premium refers to the amount which is over and above the face value of the share.


Generally, if a company is well-managed, financially strong and has a very good reputation in the market, would tend to issue their shares at a premium amount. Consider, for example, that a company issues a share having face value as Rs. 10 at Rs. 11. Then, this raised amount of Re. 1 is known as 10% premium. 


The company can also call the amount of premium from the shareholders or the applicants at any given stage,which can be at the time of allotment, application, or calls. However, generally a company tends to call the premium amount during the time of allotment.

FAQs on Issue Forfeiture Reissue of Shares

1. What is Meant by Forfeiture of Shares?

Ans: Forfeiture of the shares refers to the cancellation of the shares due to non-payment of calls due. However, the company forfeits the shares only when the Article Association of the respective company allows it to do so. In case a shareholder is unable to pay the amount of call, then the company can put their actions of forfeiting the shares of the person on which he is not able to pay the amount of call. The company must give a notice period of 14 days to the shareholder before the forfeiture so that he can pay the amount of call with interest. If the shareholder does not pay, then the shares can be forfeited.

2. What is Re-issue of Forfeited Shares?

Ans: The forfeited shares are available with the company itself in the market for sale . if the shares are forfeited, the company is obliged to dispose of these forfeited shares. The company must pass a resolution in the Board Meeting conducted to re-issue these forfeited shares. The company, however, does not make any allotment of these forfeited shares. 


The company then puts these shares on auction and disposes them. The company can decide to re-issue these shares at any given price, however, the total amount which is received on these shares must not be less when compared to the amount in arrears on these forfeited shares. The total amount here is the amount which is received from the previous allottee and the second buyer.