Forfeiture, Surrender, and Cancellation of Shares

Please consider the following definitions first:

Call – A specified amount of money payable by a member of a Company concerning share(s) held by that member at a time determined by the directors of the company.

Call Notice– A notice requiring a member of a Company to pay the amount on a call.

Forfeiture of shares

Forfeiture of shares pertains to a default in making payment on a call of a share. For instance, if Mr. Kamau fails to make the second or third call by the due date as advised by Blue Co. Ltd, the entire lot of 500 shares is forfeited at the option of the company. Section 75 of the Companies Regulation 2015 empowers directors to serve a notice requiring a member to pay the call, specifying a further date, detailing how payment is to be made, and confirming that non-compliance will result in the share being liable for forfeiture.

Effects of Forfeiture

– Extinguishes all interest, claims, and demands against the company in respect to the share.

– Terminates all other rights and liabilities incidental to the share between the person whose share it was and the company.

– The person ceases to be a member in respect of the forfeited shares but remains liable for all sums payable at the date of forfeiture.

Reissuance of Forfeited Shares

Shares once forfeited revert to the issuing company, which can re-issue them at face value, at a premium, or a discount. However, if the share was initially issued at par, the maximum discount for the reissued stock is equal to the amount forfeited on the share.

It should be noted that the person’s title to the share is not affected by any irregularity in or invalidity of the process leading to the forfeiture or transfer of shares.

Surrender of Shares

A procedure wherein a shareholder willingly surrenders their shares to the company, typically due to an inability to meet the financial obligations associated with future calls on the shares. Section 79 of the Regulation provides that a member may forfeit a share, and directors may accept the surrender of such a share. The effect of surrender on a share is the same as the effect of forfeiture.

Cancellation of Shares

This refers to the action by a Company to remove or extinguish already issued or unissued shares as if they never existed. Once forfeited or surrendered, shares can be canceled by the Company. Section 427 provides a duty to the Company to cancel shares within three years from the date of surrender, effectively reducing its share capital.

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