Everything to Know About Forfeited Shares With Advantages | Motilal Oswal

Everything to Know About Forfeited Shares With Advantages


In the world of the stock market, forfeited shares refer to the equity shares that the issuing company canceled when the shareholder failed to meet specific requirements. After forfeiture, the shareholders will no longer be able to earn capital gains on any shares. As the issuing company gains full control over the shares, it can reallocate them to other shareholders. 

How Does Forfeiture Actually Work?

Forfeiture of shares occurs when shareholders cannot pay the required amount required to complete the allocation process. The forfeiture process begins by giving a 14-day' notice period to the shareholder to clear the payments with interest within a limited period. The notice is issued twice, but if the shareholder still does not respond, the allocated shares are then forfeited.

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Potential Effects of the Share Forfeiture

The followings are the initial effects of share forfeiture on investors - 

  • Cessation of the Liability

A shareholder's obligation to pay future calls is extinguished upon the forfeiture of shares. However, the shareholders will still be liable to make payments for the unpaid calls to their company.

  • Loss of Potential Earning and Ownership

As the shareholder will no longer be the share owner, he or she won't receive any dividends. Also, if the share prices increase in the future, the former shareholders will lose out on potential gains.

How to Prevent Forfeiture of Shares?

The shareholders must take different actions beforehand to mitigate the risk of their shares getting forfeited.

First, they must abide by all the restrictions and terms and conditions. Then, they need to consider meeting every payment obligation by keeping track of their vesting periods.

New shareholders with confusion can always take help from the company secretary to sort everything out. Communicating with the issuing company will help the shareholders be safe from the forfeiture of shares. 


Forfeited shares may seem like a dire consequence, but it won’t happen if you clear all your payments on time and strictly follow all the rules and regulations. Therefore, it is better to learn all about the steps required for prevention of the share forfeiture. If you have any doubts, contact an investment management company to understand how to manage your shares effectively. 


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