Q.Why are the shares forfeited ?

Shares are forfeited because the shareholder fails to pay the allotment or call money due; the company then cancels the membership and retains the amount already received.

Reason and process (for 2 marks):

• Reason: A shareholder is bound to pay the full amount due on the shares in instalments (application, allotment, calls). If the shareholder fails to pay the allotment money or any call money by the due date even after reminders, the company is entitled to act against the defaulter.
• Action: After giving a proper notice as per the Articles of Association, the Board of Directors forfeits (cancels) the shares. The defaulting shareholder loses membership and all rights in those shares. …