Brought to you by
vistra

Jordans Limited has a new name – we are now Vistra.

Save content
Have you found this content useful? Use the button above to save it to your profile.

Jordans FAQs: When can a company use the forfeiture of shares procedure?

19th Nov 2013
Brought to you by
vistra

Jordans Limited has a new name – we are now Vistra.

Save content
Have you found this content useful? Use the button above to save it to your profile.
Q. When can a company use the forfeiture of shares procedure? 
 
A company can only exercise the right to forfeiture of shares where a shareholder has not paid the amount due on its shares.
 
Model Article 21of the Model Articles (MA) for a private company does not allow for a company to issue nil or partly paid shares and therefore there are no forfeiture provisions. However, MA 44 of the Model Articles for a public limited company does have the provision for a company to issue nil or partly paid shares. If a private company incorporates with articles of association that exclude the requirements of MA 21 then it has the ability to use the forfeiture of shares procedure.
 
The forfeiture of shares procedure can be found in the MA for a public limited company. In summary, the directors must send a notice (a "call notice") to the shareholder requiring them to pay the Company a specified sum of money (a "call") which is payable in respect of the shares that the shareholder holds at the date. If the shareholder fails to pay the call by the call payment date (the date on which the call notice states that a call is payable) the directors may send a notice of forfeiture (a "forfeiture notice") to that shareholder and until the call is paid, that shareholder must pay the company interest on the call from the call payment date at the relevant rate. 
 
A forfeiture notice:-
(a) must require payment of a call and any accrued interest by a date which is not less than 14 days after the date of the forfeiture notice
(b) must state how the payment is to be made
(c) must state that if the forfeiture notice is not complied with, the shares in respect of which the call is payable will be liable to be forfeited.
 
As new companies are formed with MA or articles that keep the MA21 provisions and existing companies adopt the MA it is very possible that the forfeiture of shares procedure for private companies will eventually become obsolete. 
 
About the author: Karina James-Wiltshire is Corporate Legal Services Executive at Jordans Limited and a graduate member of The Chartered Institute of Legal Executives.  
 
For more information go to www.jordans.co.uk
 
Tags:

You might also be interested in