Call and forfeiture of shares

By Koushambi Sengupta

Meaning of call - A call is a demand made by a company to its shareholders to pay the balance due to on each class of shares, wholly or partly, in pursuance of a Board Resolution.

Where a company is winding up, a call for making payment can also be made by the liquidator. The amount payable on call on each share shall not be less than 5% of the nominal amount of share.

Essential conditions for making a call- The following are the essential conditions for making a valid call-

A. A proper notice has to be given to the shareholder prior to making payment on call and such notice must specify the amount called up and to whom and where it has to be paid.

B. The power of making a call for payment shall be exercised only for the benefit of the company.

C. Calls made for the same class of shares shall be on a uniform basis.

D. In a Board Resolution, for making a call, the directors present must be duly qualified.

E. Other essential conditions for Board Resolution like proper quorum, methods of Board Resolution must be fulfilled.

Manner of making a call- The manner of making a call is specified in the Articles of Association of a company. They are as follows- 

A. For making a call for payment, prior notice must be served to the shareholder at least 14 days prior to the date of making payment.

B. There must be at least a 1-month gap between two successive calls.

Not more than 25% of the nominal value of shares can be called at a single time. The companies are at the discretion to raise the limit.

C. Joint shareholders may be jointly or separately liable for making payment on call.

D. If a shareholder wishes to make payment in advance, he may do so at the discretion of the Board of Directors.

E. Where the shareholder fails to pay on call, he shall not have voting rights till the money is paid by him.

Forfeiture of shares

Meaning of forfeiture- Where a shareholder fails to pay on call, his shares is liable to be forfeited.

Manner of forfeiture- 

A. Shareholder must be given notice at least 14 days prior to the date of forfeiture, to make a payment on call along with interest.

B. Where the shareholder fails to pay within the prescribed time, the shares shall be forfeited. 

Effect of forfeiture- 

After the forfeiture of shares of a shareholder, he loses all rights on the shares and ceases to be a member. He is not entitled to future dividends and the Rights of membership.  

Although later the shares can be re-issued on a discount. 

A new share of the certificate is also issued.

This article does not intend to hurt the sentiments of any individual, community, sect, or religion, etcetera. This article is based purely on the author’s personal opinion and views in the exercise of the Fundamental Rights guaranteed under Article 19(1)(A) and other related laws being enforced in India for the time being.