Reissue of Shares Meaning
When some of the shareholders are unable to pay allotment money or call money, their shares are forfeited by the company. After the forfeiture, the company can reissue the shares. In this type of issue, neither prospectus is issued, nor an offer is made by the company.
The company can reissue the shares of previous allottees at par, at a premium, or discount. Usually, these shares are reissued at a discount (at a price less than the face value of the share).
Reissue of Forfeited Shares
The company forfeits shares because a part of the due amount of such shares is received, and the balance remains unpaid. On forfeiture, the allotment of the member holding shares is cancelled. Therefore, the company can reissue the forfeited shares at any price, but it should not be less than the amount in arrears of such shares.
For example - A paid Rs.5 as application money for a share having a nominal value of Rs.100. On his failure to pay further allotments, the company forfeited his shares. So, the amount the company has in arrears is Rs.6. The company can reissue the shares at a price more than Rs.6.
Reissue of Shares
Share Forfeiture and Reissue Entry
On the Forfeiture of Shares
Equity Share Capital Account Dr.
To Equity Share First Call Account
To Equity Share Second Call Account
To Share Forfeiture Account
On Reissue of Shares
At Par
Bank Account Dr.
To Equity Share Capital Account
At a Premium
Bank Account Dr.
To Equity Share Capital Account
To Securities Premium Reserve Account
At Discount
Bank Account Dr.
Share Forfeiture Account Dr.
To Equity Share Capital Account
Example - XYZ Ltd. forfeits 200 equity shares of Rs.10 each issued at par for non-payment of the first call @ Rs.3 per share and the second and final call @ Rs.2 per share. The shares are reissued as fully paid-up @ Rs. 8 per share. Give the journal entries.
The Profit on Reissue of Forfeited Shares is Transferred to
Any amount of profit on the reissue of forfeited shares is a capital receipt. The amount should be transferred to the capital reserve account because this profit is the capital gain for the company.
The company can treat the credit balance in the Share Forfeiture Account until it reissues such shares. That’s the reason why companies reissue forfeited shares at a discount to adjust the Share Forfeiture Account.
Conclusion
Forfeited shares are available for sale by the company. The company is under obligation to reissue those shares. The company can reissue the shares as per the agreed terms and conditions. The company is required to pass a resolution in its Board Meeting regarding the same. Moreover, the company can conduct auctions to dispose of the forfeited shares. The reissue is merely concerned with the sale of shares. It does not mean reissuing shares in the share market. These can be sold to another person or company.
FAQs on Reissue of Forfeited Shares
1. What are the provisions of Table A of The Companies Act, 1956 regarding the forfeiture and reissue of shares?
In the absence of any provisions, the following provisions of Table A are applicable:
If any member fails to pay any call on or before the day appointed for payment, the Board may serve a notice requiring payment together with any interest which may have accrued.
The notice shall:
(i) Name a further day ( not being earlier than the expiry of fourteen days from the date of the service of the notice) on or before which the payment is to be made.
(ii) State that, in the event of non-payment, the shares in respect of which the call was made will be forfeited.
2. Why is the issue of shares (except sweat equity shares) prohibited by the Indian Companies Act?
Some companies with strong fundamentals charge a premium for their shares. This is allowed under the Companies Act. But companies with weak fundamentals can’t offer discounts to attract shareholders to buy their shares. Therefore, the Companies Act prohibits the issue of shares at discount to protect the interest of stakeholders.
However,
The Companies Act 2013 allows the issue of shares at a premium.
The Companies Act 2013 forbids the issue of shares at discount. But the companies can issue shares at discount to their promoters, employees, and directors.
3. A Ltd. forfeited 1000 shares on non-payment of the final call of Rs.2 per share. The face value is Rs.10 per share. Out of forfeited shares, 600 shares were reissued for Rs.7 per share, fully paid up. Give the necessary journal entries.
Equity Share Capital A/C Dr To Share Final Call A/C To Share forfeiture A/C | 10000 | 2000 8000 | |
Bank A/C Dr Share Forfeiture A/C Dr To Equity Share Capital A/C | 4200 1800 | 6000 | |
Forfeiture Share A/C Dr To Capital Reserve A/C | 3000 | 3000 |
As only 600 shares are reissued, the capital reserve will be Rs. 3000 (4800-1800). In this case, we will not transfer the income of 400 shares that are not reissued to the capital reserve account.
