Distinguish Between Forfeiture of Shares and Surrender of Shares | 12th HSC Secretarial Practice (S.P.) Chapter 3
The distinction between Forfeiture of Shares and Surrender of Shares is a highly expected board exam question from Maharashtra State Board (MSBSHSE) 12th Standard HSC Secretarial Practice (S.P.) Chapter 3: Issue of Shares. In the HSC Board Examination, this question frequently appears under Question 4 (Distinguish Between) carrying 4 Marks. Below is the complete, textbook-accurate tabular solution strictly aligned with the latest Balbharati Textbook and official board marking scheme.
Board Exam Marking Scheme Tip: Each Distinguish Between question in Q.4 carries 4 Marks (1 mark per valid point). Always present your answer in a neat 3-column table including the Basis of Distinction. Write at least 5 to 6 clear points (starting with Meaning, Nature of Action, Initiated By, and Notice) to guarantee a full 4 out of 4 score!
Distinguish Between: Forfeiture of Shares and Surrender of Shares
| Sr. No. | Basis of Distinction | Forfeiture of Shares | Surrender of Shares |
|---|---|---|---|
| 1. | Meaning | Forfeiture of shares means taking away (compulsory cancellation) of a member's shares by the company due to non-payment of allotment or call money. | Surrender of shares means the voluntary return of partly paid-up shares by a member to the company for cancellation in order to avoid the humiliation of forfeiture. |
| 2. | Reason / Purpose | It is a penalty imposed on a defaulting shareholder for failing to pay calls on shares within the specified time limit. | It is done when a shareholder realizes his inability to pay further calls and voluntarily hands over the shares to save the company the time and expense of forfeiture. |
| 3. | Nature of Action | It is a compulsory (involuntary) action taken by the Board of Directors in the interest of the company. | It is a voluntary action taken by the shareholder himself out of his own free will. |
| 4. | Initiated By | The procedure of forfeiture is initiated by the Company (Board of Directors). | The procedure of surrender is initiated by the Member (Shareholder). |
| 5. | Notice | The company must serve a compulsory 14 days' prior written notice to the defaulting member before forfeiting his shares. | No prior notice is required from the company, as the member voluntarily offers his shares for surrender. |
| 6. | Articles of Association | Shares can be forfeited only if it is expressly authorized by the Articles of Association of the company. | Surrender of shares is valid only if it is authorized by the Articles of Association and only in circumstances where forfeiture is justified. |
| 7. | Time / Procedure | It is a long and strict legal procedure involving reminders, a 14-day final warning notice, and a Board Resolution. | It is a quick and simple procedure that avoids the lengthy legal formalities of serving notices and reminders. |
| 8. | Re-issue of Shares | Forfeited shares become the property of the company and can be re-issued by the company to new buyers to recover the unpaid call money. | Surrendered shares are treated on par with forfeited shares and can also be re-issued by the company in the same manner. |
Quick Memory Trick to Remember All Points in the Exam
Memory Shortcut (Mnemonic — "MR-NIN-AT"):
Remember these 6 easiest points from the Balbharati textbook to write in under 4 minutes:
1. Meaning (Compulsory Cancellation by Company vs. Voluntary Return by Member)
2. Reason (Penalty for Non-payment of Calls vs. Inability to Pay Further Calls)
3. Nature of Action (Compulsory / Involuntary Act vs. Voluntary Act)
4. Initiated By (Initiated by Company / Board vs. Initiated by Member / Shareholder)
5. Notice (14 Days' Prior Written Notice Mandatory vs. No Notice Required)
6. Time / Procedure (Lengthy Legal Procedure vs. Quick & Simple Procedure)
Key Concept Summary for Objective Questions (Q.1)
- Only Partly Paid-up Shares: Both Forfeiture and Surrender can take place only in the case of partly paid-up shares (never on fully paid-up shares).
- Mandatory Notice Period: Before forfeiting shares, the company must send a final warning notice giving the member at least 14 days from the date of service of notice to pay the unpaid call money along with interest.
- Reduction of Share Capital: Both Forfeiture and Surrender lead to a reduction of share capital unless the shares are subsequently re-issued by the company.
- Effect on Membership: Upon forfeiture or surrender of shares, the person ceases to be a member of the company and loses all rights and previously paid money on those shares.