Forfeiture of Shares in Nepal

What is Forfeiture of Shares?

Forfeiture of shares is a process where the company forfeits the shares of a shareholder who fails to pay the call money on shares issued within a certain period of time within due date. In other words, when the shareholder fails to pay the call amount of share which he agreed to pay in installments the company can cancel his allotted shares. In the event of forfeiture of shares, the shareholders losses the rights of being a shareholder and ceases to be a shareholder in a company.

Legal Provision regarding Call Notice?

The time period of written notice shall be provided in the Articles of Association of each company. However, at least 30 days time period shall be provided to each shareholders of the company. It is applicable for both private and public companies. 

Call notice shall contain the call amount, time period for making payment and the place/bank account to make payment. First call notice shall be published by every public company at least two times in national daily newspaper which is not required for private companies. 

It means the company is not allowed to provide notice to shareholders of less than 30 days , however more than 30 days time period for call notice is allowed which should be in accordance with articles of association. Suppose, where the company articles of association of the company prescribes 45 days time period for sending call notice then the companies.

Procedure for Forfeiture of Shares in Nepal

Where the shareholders is not able to pay the call money with the time period of first call notice, the company is required to send second call notice by providing the time period of 3 months to the shareholders. Where the call money asked by the company could not be paid by shareholders even within the extended 3 months, then the company may forfeit the shares owned by the shareholders.

Where the shareholder wants to pay the call money within the extended period of 3 months, interest rate prescribed the company shall also be paid along with call amount.

Further, second call notice shall be published at least 3 times in national daily newspaper by every public company only.

The provision relating to forfeiture of shares has been enumerated in section 53 & section 56 of Companies Act, 2063. In Nepalese law, the company may forfeit only the  shares not the money already paid the shareholders to the company against shares. In order to forfeit the shares of any shareholder, the company is required to pass Special Resolution in the General Meeting of the company.

There are two methods to forfeit shares in the company when the shareholder is unable to pay the call money within due time period. In one option the company may forfeit all the shares and in another option the company may forfeit shares remaining after treating the amount already paid by the shareholders to the company as fully paid. 

Option 1: Forfeit all Shares

In this option, the company forfeit all the shares of the company and refund all the money paid by each shareholders to the company. Let us suppose, Mr. Ramesh, is a shareholder of a company named Reliance Investment Ltd. He owned 1,000 shares of the company having face value of 100 per share. Mr. Ramesh has paid an application money of 40 per share on each shares he had purchased. The company send the call notice asking the shareholders to pay remaining 60 per share. Here, Mr. Ramesh has already paid NRs.40,000 to the company against the shares. The company shall have to refund NRs.40,000 to Mr. Ramesh, if it wants to forfeit all the shares (i.e. 1,000 shares) of the company.

Option 2: Forfeit Remaining Shares

In this option, the company will forfeit shares remaining after retaining the number of shares as fully paid up against amount already paid by the shareholders to the company. Suppose, Mr. Ramesh, is a shareholder in the company holding 1,000 shares of face value 100 per share. He has paid an application money of 40 per share on each 1,000 shares. The company send the call notice asking the shareholders to pay remaining 60 per share. Here, the amount paid by Mr. Ramesh i.e.NRs.40,000 which can be used for purchase of 400 shares treating as fully paid up. Remaining 600 shares out of 1,000 shares shall be forfeited by the company. Here, the company is not required to refund the money already paid by the shareholders to the company, since against that amount fully paid up shares shall be issued to the shareholders.

How to Refund the Money?

The company have to refund the money to shareholders, when it plans to forfeit all the shares in the company. After making decision regarding forfeiture of all shares, the company shall have to refund the money within 3 months of making decision of forfeiture. Where the company fails to refund the money within the period of 3 months, the company is required to pay the interest to the shareholders on such amount liable to be refunded. 

How to do for Forfeited Shares?

Decision regarding forfeiture of shares shall be done by passing special resolution in the general meeting of the company. However, the sale or disposal of the forfeited shares is to be made by board of directors in accordance with articles of association of the company.