When shares are forfeited, share capital account is debited. Explanation: Share Capital Account represents the liability of the company as it is the amount that is borrowed from the public. Therefore, at the time of forfeiture of shares, it is debited with a called-up amount.
A forfeited share is an equity share investment which is cancelled by the issuing company. A share is forfeited when the shareholder fails to pay the subscription money called upon by the issuing company.
Share Forfeited A/c:
It is a nominal account. It is credited with the amount received by the company on forfeited shares. The amount forfeited by the company is a gain that is why it is credited.
If at the time of the forfeiture the entire amount of premium has already been received by the company, then the entries remain the same, i.e. as if the shares were issued at par. Please note that the Share Premium Account will not be debited in this case.
Authority to Forfeit: The power to forfeit must be expressly given in the Articles. Accordingly, if no power is given in the Articles, no forfeiture can be made. 2. Default in Payment of Calls: The shares can be forfeited only for the non-payment of calls and not for the default in payment of any other debts.
The main reason for forfeiture is where a call payment has been requested by the company on unpaid (or partly paid) shares and the shareholder has failed to pay the amount due.
What Is a Forfeited Share? … 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.
What is a forfeited company?
When a state government labels a corporation as “forfeited,” that’s bad news. A forfeited corporate entity loses its right to operate in that state. In California, for example, the corporation can’t defend against a lawsuit or enforce its contracts, and loses the right to its business name.
What is forfeited amount?
In case the transfer of assets is done within the agreement between seller & buyer, then will the advance money taken by seller in previous FY be termed as forfeited amount.
Who are the real owners of the company?
Explanation : Equity shareholders are the real owners of the company. Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds. They are the foundation for the creation of a company.