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Forfeited Share Means, With Definition and Example

File Photo: Forfeited Share Means, With Definition and Example
File Photo: Forfeited Share Means, With Definition and Example File Photo: Forfeited Share Means, With Definition and Example

What Exactly Is a Forfeited Share?

A publicly listed company’s forfeited share is one that the owner loses by not meeting buying criteria. A shareholder may forfeit their shares if they fail to pay their allocation (call money) or sell or transfer their shares during a limited time.

When a shareholder forfeits a share, they lose any residual balance and potential financial gain, and the issuing company reverts to owning the shares.

The Forfeited Share Process

Suppose David, an investor, agrees to acquire 5,000 shares of a firm with a 25% initial payment and three yearly 25% installments, per the company’s timetable. David may lose all 5,000 shares if he misses one installment, and the firm may confiscate his money.

Corporations can provide delinquent shareholders with grace periods before seizing their shares.

Employee Share Forfeiture

Some organizations provide stock purchase schemes, allowing employees to use a portion of their salary to buy discounted company shares. These programs frequently have limits. Stocks are often restricted from sale or transfer after acquisition.

A firm employee who leaves before a mandated waiting time may have to surrender whatever shares he bought. Conversely, if an employee stays with the firm for a certain period, he gets fully vested in those shares and can sell them.

When an employee forfeits stock bought under an employee stock purchase plan, the corporation may never reissue it.

Forfeited Shares Example

Company stock purchase schemes encourage employee loyalty. Companies also provide employees with restricted stock units as incentives, which they disperse gradually. Example: An employee may earn 80 restricted stock units as a yearly bonus. However, the stock vests the first 20 units in the second year after the incentive, 20 in year three, 20 in year four, and 20 in year five to keep this prized employee. After two years, only 20 stock units are vested, and 60 are forfeited if the employee departs.

Forfeited Share Reissue

If shares are forfeited, the issuing corporation might reissue them at par, at a premium, or at a discount below their nominal value. A company’s board of directors frequently reissues forfeited shares at a discount.

If the shares were issued at par, the maximum discount for reissued stock is the forfeited amount. If the company’s articles of association allow, the board may reissue lost shares to a third party but not to the defaulting shareholder.


  • Owners who violate purchase terms or limitations forfeit their publicly listed company shares.
  • With forfeited shares, the shareholder loses any remaining balance and any gain.
  • The issuing corporation gets the forfeited shares when an employee retires before stock options vest.
  • The issuing corporation can reissue forfeited shares at any price, usually at a discount.



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