Forfeited Share

A forfeited share is a company share that an owner loses for failing to meet purchase requirements or transfer restrictions. Common triggers include missing scheduled payments (call money) or selling/transferring shares during a restricted period. When shares are forfeited, they revert to the issuing company; the original holder loses any remaining claim to the shares and any potential capital gain, and is relieved of any further payment obligations.

Key points

• Forfeiture happens when a shareholder fails to meet contractual or statutory conditions attached to the shares.
• The forfeited shares return to the issuing company, which may reissue them.
• The original holder gives up any previously paid amounts and any future gains on those shares.
• Companies commonly reissue forfeited shares at a discount, but terms depend on corporate rules and local law.

How forfeiture works

If shares are issued with installment terms or conditions, the company can forfeit them when a holder defaults. For example: an investor agrees to buy 5,000 shares with four equal annual installments. If the investor misses one installment, the company may seize all 5,000 shares and retain any amounts already paid. Corporations, however, are not obliged to forfeit immediately and may grant grace periods or other remedies.

Employee shares and vesting

Employee stock purchase plans and equity awards (like restricted stock units, RSUs) often carry restrictions and vesting schedules:
* Purchases or awards may be nontransferable for a set period.
* Employees who leave before vesting may forfeit unvested shares.
Example: An employee receives 80 RSUs that vest 20 units per year starting in year two. If the employee departs after year two, only 20 units are vested and the remaining 60 units are forfeited.

Note: Forfeited employee shares may be reissued by the company and the original employee typically has no right to reclaim them.

Reissuing forfeited shares

Forfeited shares become company property. The board of directors generally decides whether to reissue those shares and at what price:
* They can be reissued at par, at a premium, or at a discount.
* Boards commonly reissue at a discount, subject to any legal or constitutional limits.
* If shares were originally issued at par, the allowable discount on reissue is often limited to the amount forfeited on those shares.
* Corporate articles may permit reissue to third parties but often prohibit reissue back to the defaulting shareholder.

Practical considerations

• Shareholders should understand payment schedules, transfer restrictions, and vesting terms before accepting shares.
• For employees, vesting schedules determine exposure to forfeiture risk—staying through vesting dates preserves ownership rights.
• Companies gain flexibility when shares are forfeited: they can reallocate or reissue shares as capital needs dictate.

Understanding the terms attached to any share issuance—especially installment obligations and vesting conditions—helps both investors and employees avoid unexpected forfeitures.