Difference between Forfeiture and Surrender of Shares

The main difference between forfeiture and Surrender of Shares are as follow

Forfeiture of Shares

When a shareholder fails to pay calls, the company, if empowered by its articles, may forfeit the shares. If a shareholder has not paid any call on the day fixed for payment thereof and fails to pay it even after his attention is drawn to it by the secretary by registered notice, the Board of Directors pass a resolution to the effect that such shares be forfeited. Shares once forfeited become the property of the company and may be sold on such terms as directors think fit. Upon forfeiture, the original shareholder ceases to be member and his name must be removed from the register of members.

On Forfeiture, share capital account has been debited as it reduces the share capital and calls due but not received will be credited in order to cancel their debit balance standing in the books. Discount on the issue of shares will be cancelled like share capital on forfeiture of shares. At the time of issue discount on issue must have been debited if the shares are issued at less than the face value and in order to cancel this account will now be credited. Premium received on the original issues of shares cannot be cancelled on the forfeiture of shares as once the premium in received it cannot be cancelled. Securities Premium not received on the issue of shares will be cancelled by debiting the Securities Premium account with the forfeiture entry. Shares forfeited account balance will be shown on the liabilities side of the Balance Sheet till such time that all shares are reissued.

Surrender of Shares

After the allotment of shares, sometimes a shareholder is not able to pay the further calls and returns his shares to the company for cancellation. Such voluntary return of shares to the company by the shareholder himself is called surrender of shares. Surrender of shares has no separate accounting treatment but it will be like that of forfeiture if shares. The same entries (as are passed in case of forfeiture of shares) will be passed in case of surrender of shares.