Forfeited Shares: an Explainer

What happens to Shares when Shareholders Die
Table of Contents

Share at:

What is a share?

Before getting into what forfeited shares are, its good to cement our understanding of what shares are. A share is just a piece of ownership of a company. Let’s say that a company has 1 million shares. If you own 100,000 shares, that means you own 1/10th of the company. The share price of a company may go up and down, but that would still reflect the total value of the company. Meaning, even if the share price were to change, your percentage of ownership would not, if the amount of shares have not changed.

Companies can either be limited by shares or guarantee. If you are interested in this topic, feel free to read our quick legal guide explaining the basics of company structure.

What is a forfeited share?

A forfeited share is a share that is lost if the purchaser does not comply with the requirements for buying it. Forfeited shares only apply to publicly listed companies, meaning companies that the public can purchase shares in. These requirements can involve paying a certain amount of money for the shares by a certain date, or they can be of a restrictive nature. Such as requiring that the shares do not be transferred or sold before a certain date. Regardless of which requirement is broken, if any are not complied with the shares are considered forfeited.

If you wish to read up on how shares trade hands or are disposed of click here.

The effect of forfeited shares

In the event shares are forfeited, the shareholder no longer owes any money to the company for the shares. The ownership of the shares go back to the company, including any potential money from the shares. Now that the shares are back in the company’s ownership, if the company wishes to reissue, they can do three things. They can reissue the shares at face value, at a premium, or at a discount. Re-issuing would just mean to let people purchase the shares again instead of holding onto it.

Example

To better explain the concept here is an everyday example. Let’s say that you are working at a company. This company offers its employees employee stock purchase plans. These plans just mean that you as an employee can choose to put away a certain amount of your salary towards purchasing shares in the company. By purchasing these shares however, there are certain requirements in place. It may require that you don’t sell the shares until a certain amount of time has passed. It could also require that you don’t leave the company before a certain time period, or you lose the shares.

Lets say that you don’t comply with the requirements of the plan. What would then happen, as discussed before, is that you would have forfeited these shares. You will lose your ownership of these shares, and they will go back to the company. The company can then choose to reissue these shares at its face value, at a premium, or a discount.

If you have any questions about your current situation with shares that carry restrictions we recommend seeking legal advice. This would provide that extra level of security to make sure that the shares do not become forfeited. Feel free to reach out to our network of expert lawyers.

Conclusion

You need to honor the requirements for shares otherwise they will become forfeited. Forfeited shares go back to the company that issued them out, and the shareholder will lose all ownership and benefits of the shares. Generally, the requirements would be either paying a certain amount of money before a period of time, or a restriction on handling the shares. No matter the requirements, if any are broken then the shares are forfeited. It is important to seek legal advice to make sure that you are satisfying the requirements for certain shares.

Share at:

Simplify creating legal documents today

Browse through Lawpath's AI tools which can be used to draft, review and refine legal documents today!

Related Articles

7 Things Directors Should Consider In Tough Times (2026 Update)

Running a business often isn't easy. Here's some things Directors should keep in mind when things aren't going as well as planned.

5 Legal Requirements When Starting a Sports Club (2026 Update)

When starting a sports club, there are some legal issues you need to consider. Find out the legal requirements for setting up a sports club here.

What is a Shareholders Agreement? (2026 Update)

Learn why a Shareholders Agreement is an essential document in any new company and how it can manage potential risks and disputes.

What Is a Liability Waiver Form? (2026 Update)

A liability waiver form will protect your business from legal action where customers engage in risky activities. Find out more in this article.

What is a Gift Deed? (2026 Update)

Planning on transferring property to someone as a gift or for no cost? You may want a gift deed. Read on to find out how gift deeds work.

How to Create a Business Sale Agreement (2026 Update)

Want to sell or purchase a business? Find out how to create a Business Sale Agreement and all the key terms you should include here.