Reissue And Forfeiture Of Shares In Corporate Entities

Process of reissuing forfeited shares

The present study is based on the evaluation and analysis of forfeiture and reissue of shares done by a corporate entity in Australia. Further, the present study covers practical examples and illustrations, supported by viable sources to provide a better understanding of same.

Reissues of share- shares are forfeited if the investor fails to pay the due amount and balance remains unpaid. While forfeiture the membership right on the share is cancelled for the shareholder and they cannot be further obliged for paying a due amount (Pitfield, 2016). Such unpaid shares are owned by the company, and they have right to sell those shares, and such shares are called” reissue of share” therefore reissue of share means issue of forfeited shares.

As authority forfeitures, the shares, therefore share certificate which is allotted to the shareholder is cancelled. The further declaration has been made by the directors to allot the forfeited shares to new investors. At the time of reissue of shares, directors do not issue any prospectus or serve any offer to the general public. A further amount of such shares can be asked to be paid in one or two instalments. However, generally, whole reissue amount is asked to be paid in one instalment.

Price for reissuing the share is decided by the Board of Directors. Shares are reissued at par, at a premium, or at a discount (Nichols, Betancourt and Scott, 2017). Generally reissued shares are calculated on the discount basis, i.e. the amount which is less than its actual values. Discount that is allowed while reissuing the products should be more than the amount of its forfeited shares to ensure overall loss is compensated. 

Reissue of forfeited shares is not considered as the share allotment but is merely considered as a re-sale. A corporate entity can do reissuing of forfeited shares under the applicable provisions given in the articles (Pitfield, 2016).  Further, the forfeited shares could be reissued under discount basis, but the discount shall not surpass the accessible amount in the account of share forfeiture.

• When there is a loss in the reissue of share, then the loss shall be placed on the debit side of share forfeiture account. In a situation where the loss is less than the fortifying amount, then the extra amount shall be relocated to the capital reserve account.
• In case the prices of shares which are reissued are higher than the actual amount, then the extra amount shall be placed on the credit side of securities premium account(Borg, 2015).
• If only a part of shares is reissued, then, in this case, the profit shall be relocated to the capital reserve account.

Shares can be fortified if one of the following conditions is satisfied:

Shares are forfeited as the amount is not fully paid, or shareholder does not pay the due on allotment or calls (Burns, 2017.At the time of forfeiture, shareholder is a restricted member of the company. A shareholder whose share is forfeited is entitled to a full or half refund of the amount which is paid before forfeiture.

Various outcomes

• In a situation where the company is listed on AXS or if they are permitted by operating rules amount of refund to investors is equivalent to the amount paid by them less cost of the reissue of shares.
• Refund Amount that company has to pay back to the shareholder are recorded in a forfeiture shares account
• If a corporation is not listed on AXS and nothing is mention by the constitution about a refund, the company has a right to hold the amount paid fewer costs of reissuing shares (Nichols, Betancourt and Scott, 2017).
• The amount that is paid to the shareholders is mentioned in forfeited share reserve.

In a situation where the reissue of the fortified shares are done on a discount basis, then the bank account will be on the debit side by the received amount and the share capital will be credit by the paid-up amount. The allowance of the discounted amount shall be debited in the Share Forfeited Account. This is meant for the adjustment of the allowed discounted amount from the fortified amount during forfeiture (Singh, 2014). 

Issuing shares at par, premium, or discount

For the above illustration, the journal entry has been provided as below:

Bank A/c (the amount received on reissue) Dr.

Share Forfeited A/c (the amount allowed as a discount) Dr.

To Share Capital A/c (paid up amount)

As described earlier that the discount amount entitled on the reissue of shares almost can be equivalent to the forfeited amount on the same shares. In the same scenario, the share forfeited account subsequent to the reissue of share will reflect a nil balance. However, in this scenario, the discount amount is less than the fortifying amount, the left forfeited amount will be considered as the profit margin of the corporation (Warren and Jones, 2018). Such profit is said to be capital gain to the corporation, and it will be relocated to the Capital Reserve account.

Journal entries on the same are presented as below:

Share Forfeited A/c Dr

To Capital Reserve A/c

(Transfer of surplus share forfeited amount to capital reserve A/c)

In a situation where reissuing of all the forfeited shares are dine, then a nil balance will be reflected by Share Forfeited A/c, as the entire amount present in the account after the adjustment of allowed discounted amount on reissue that would be relocated to the capital reserve account (Beekes, Brown and Zhang, 2015). However, in this scenario, only a portion of the forfeited shares are reissued, and the remaining will stay as cancelled, along with that the fortified amount on forfeited shares which are reissues will stay in the Shares Forfeited Account. 

To adjust the forfeited amount on the reissued shares the calculation is provided as below: 

Reissue of the forfeited share is ascertained in three situation that are-

1 Shares issued at par- when shares are issued at par; the highest discount which is permitted for reissue of shares is same to the forfeiture shares.

1. Shares issued at premium- on premium basis shares are issued in two situations-
2. Amount of premium has not been received on forfeited shares
3. Amount of premium has been received on forfeited shares    Forfeited amount is that amount that has been received includes premium amount and if premium is not been received the maximum discount is allowed to reissue of shares which is forfeited (Sivathaasan, 2016).
4. Shares issued at a discount- if reissued amount which is received becomes fortified amount and if the maximum discount on the reissue of shares will be same as amount fortified plus the amount of discount are allowed on such shares at the time of original use(Ali, 2016). 

Example

{Shares forfeited and reissues} CP company has forfeited 2000 shares of $10 each held by Vikas.he has paid application $ 2 and allotment $ 5, but the final call has not been paid by him. These shares were reissued at $ 9 per share fully paid up. Accounting for these entries will be as follows:

DATE	PARTICULARS		Dr. Amount	Cr. Amount
	Share Capital AC  Dr [2000*10]                       To Share Forfeited AC[2000*7]    To Call In Arrears AC[2000*3] [Being 1000 share forfeited]		$20000.00	$14000.00 $6000.00
	Bank AC  Dr [2000*9]                                          Share Forfeited AC  Dr [2000*1]      To Share Capital AC[2000*10]		$18000.00 $2000.00	20000.00
	Share Forfeited AC    Dr        To capital reserve ac  [14000-2000]                              [Being amount transferred from share forfeited to capital reserve]		12000.00	12000.00

Conclusion

By considering the above analysis, it can be concluded that the reissue and forfeiture must be done in a viable and fair manner in accordance with the applicable company laws to match the requirements of shareholders and corporate. Moreover, key findings and practical examples have been provided in the given study for in-depth understanding for an accounting of the concerned topic. 

References

Ali, S., 2016. Corporate governance and stock liquidity in Australia: A pitch.

Beekes, W., Brown, P. and Zhang, Q., 2015. Corporate governance and the informativeness of disclosures in Australia: A re?examination. Accounting & Finance, 55(4), pp.931-963. 

Borg, D.J., 2015. The acquisition of own shares by limited liability companies. 

Burns, A., 2017. Don’t lose sight of losses when succession planning. Taxation in Australia, 52(5), p.241. 

Nichols, N., Betancourt, L. and Scott, I., 2017. The FASB Simplifies the Accounting for Share?Based Payments. Journal of Corporate Accounting & Finance, 28(4), pp.8-19. 

Nichols, N., Betancourt, L. and Scott, I., 2017. The FASB Simplifies the Accounting for Share?Based Payments. Journal of Corporate Accounting & Finance, 28(4), pp.8-19. 

Pitfield, R.R., 2016. Company Law: Made Simple. Elsevier. 

Singh, R., 2014. ROLE OF SHAREHOLDERS AND DEBENTUREHOLDERS IN COMPANY PERSPECTIVE(Doctoral dissertation, Singhania University).

Sivathaasan, N., 2016. Corporate governance and leverage in Australia: A pitch. Journal of Accounting and Management Information Systems, 15(4), pp.819-825. 

Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.