Forfeiture and surrender of shares

Forfeiture lets a company take back partly paid shares when the holder fails to pay a call, and surrender is the holder handing them back voluntarily to avoid formal forfeiture. Both are only lawful if the company’s articles provide for them and only for failure to pay a sum due on the shares. The former holder stops being a member but stays liable for what was owed, and a public company must dispose of or cancel the shares within three years.

When can a company forfeit shares?

Forfeiture is an exception to the general rule in section 658 of the Companies Act 2006 that a limited company must not acquire its own shares. Section 659(2)(c) permits “the forfeiture of shares, or the acceptance of shares surrendered in lieu, in pursuance of the company’s articles, for failure to pay any sum payable in respect of the shares”. Three conditions follow from that wording:

• the articles must contain a forfeiture power;
• the trigger must be non payment of a sum payable in respect of the shares themselves, such as unpaid nominal value or premium;
• a surrender is only covered if it is accepted instead of a forfeiture the company could have made.

Forfeiture cannot be used to remove a shareholder for some other reason, such as leaving employment or breaching a shareholders’ agreement. Those situations are dealt with by compulsory transfer provisions, which are a different mechanism; see removing a shareholder.

Do my articles allow forfeiture?

It depends on which articles the company has. The three common sets differ:

Articles	Forfeiture	Surrender
Model articles for private companies (Schedule 1, SI 2008/3229)	No provision. Article 21 requires shares to be fully paid on issue, except subscriber shares	No provision
Model articles for public companies (Schedule 3, SI 2008/3229)	Articles 57 to 61	Article 62
Table A 1985 (many companies formed before October 2009)	Regulations 18 to 22	No express provision

A private company on the model articles that has partly paid shares, typically unpaid subscriber shares, has no forfeiture power unless it adds one by special resolution. Check whether the company has Table A articles or bespoke articles before relying on any of the steps below, and see amending the articles if a power is needed.

What is the forfeiture procedure?

Under the public company model articles, which many private companies with partly paid shares copy, the steps are:

1. Unpaid call: a call has been made under article 54, or a fixed sum under the terms of issue has fallen due (article 56 treats non payment of that sum as failure to comply with a call notice).
2. Notice of intended forfeiture (article 58): sent to the holder, or to the person entitled because of the holder’s death or bankruptcy. It must require payment of the call and accrued interest by a date at least 14 days after the notice, say how to pay, and state that the shares will be liable to be forfeited if it is not complied with.
3. Directors’ decision (article 59): if payment is not made by the date in the notice, the directors may decide that the shares are forfeited. The forfeiture includes all dividends and other money payable on those shares and not paid before forfeiture.
4. Record and notify (article 60(3)): the company must send the former holder notice that forfeiture has occurred and record it in the register of members. The holder must surrender the share certificate for cancellation.

Table A follows the same shape. Regulation 18 requires not less than fourteen clear days’ notice naming the place of payment and warning that the shares will be liable to be forfeited. Regulation 19 then allows forfeiture by resolution of the directors before the required payment is made. Because forfeiture takes away property, a defective notice can invalidate the whole process, so check dates and wording against the articles exactly.

What happens to the former shareholder?

Under article 60 of the public company model articles, forfeiture extinguishes all interests in the share and all claims against the company in respect of it, and the person ceases to be a member in respect of those shares. That person nevertheless remains liable for all sums payable under the articles at the date of forfeiture, including interest, although the directors may waive payment or enforce it without allowing for the value of the shares or anything received on their disposal. Table A regulation 21 is to the same effect.

If the company later sells the forfeited share, article 61(4) gives the former holder the sale proceeds net of commission, excluding any amount that was or would have become payable and had not been paid when the share was forfeited. No interest is due on those proceeds. Table A has no equivalent clause, so the position under older articles depends on their exact wording.

What happens to the forfeited shares?

Under article 60(2), a forfeited share is deemed to be the company’s property and may be sold, allotted again or otherwise disposed of as the directors think fit. Before disposal, the directors may cancel the forfeiture on payment of all calls and interest and on other terms (article 60(4)). Table A regulation 20 gives a similar power to sell, reallot or dispose of the share, or cancel the forfeiture, “subject to the provisions of the Act”.

On a sale, the directors may authorise someone to sign the transfer, and a statutory declaration by a director or the company secretary that the share was forfeited on a specified date is conclusive evidence of that fact against anyone claiming the share (article 61(2); Table A regulation 22). The buyer’s title is not affected by irregularities in the forfeiture process.

Extra rules for public companies

Section 662 applies where shares in a public company are forfeited or surrendered in lieu of forfeiture. Unless the shares are disposed of first, the company must cancel them and reduce its share capital by their nominal value no later than three years from the forfeiture or surrender. If that takes allotted share capital below the authorised minimum, it must apply to be registered again as a private company. Neither the company nor anyone else may vote the shares meanwhile, and any purported vote is void. Under section 663 the company must notify Companies House within one month of cancelling, with a statement of capital; Companies House says form SH07 is used for this.

How does surrender differ from forfeiture?

Surrender is consensual. Article 62 of the public company model articles allows a member to surrender any share for which the directors could issue a notice of intended forfeiture, which they could forfeit, or which has already been forfeited, and the directors may accept it. A surrendered share has the same effect, and can be dealt with in the same way, as a forfeited one. Surrender saves the notice steps but is still limited by section 659(2)(c) to cases where forfeiture was available for non payment.

A member who simply wants to give fully paid shares back is in a different position. Section 659(1) allows a limited company to acquire its own fully paid shares otherwise than for valuable consideration, but any acquisition for value must use one of the Part 18 routes such as a share buyback.

Worked example

Illustration only. A company with Table A articles issued 1,000 shares of 1 pound each to an investor, with 250 pounds paid and the 750 pounds balance payable on call.

• The directors resolve to call the 750 pounds, giving at least fourteen clear days’ notice (regulation 12). The investor does not pay.
• The directors serve a regulation 18 notice giving at least fourteen clear days to pay the 750 pounds plus interest, warning of forfeiture. It is ignored.
• The directors resolve to forfeit the 1,000 shares. The register is updated and the investor is asked to return the certificate.
• The investor still owes the 750 pounds plus interest unless the directors waive it.
• The directors sell the shares to an existing shareholder, who pays the 750 pounds outstanding, and a director signs a regulation 22 statutory declaration to support the buyer’s title.

What mistakes come up most often?

• No power in the articles: companies on the private model articles have none.
• Short notice: Table A requires clear days, which exclude both the day the notice is given or deemed given and the day on which it takes effect (regulation 1).
• Wrong trigger: forfeiting for something other than unpaid amounts on the shares is outside section 659(2)(c) and risks being a void acquisition under section 658.
• Forgetting the debt: forfeiture does not cancel the former member’s liability for sums due.
• Public company deadlines: missing the three year cancellation deadline or voting forfeited shares.
• Confusing it with employee share forfeiture: a provision under which employment related securities are forfeited on leaving is a restriction for tax purposes under section 423 of ITEPA 2003, which is a separate question; see employment related securities.

For how calls, the lien and unpaid capital work before forfeiture is reached, see partly paid shares and calls and a company’s lien on its shares.

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Related Accountapedia entries

• Change of company ownership and loss forfeiture
• Tax on a lease surrender payment received by a landlord
• Accounting for growth shares
• Declarations of trust over shares
• A company’s lien on its shares

Sources

• legislation.gov.uk: Act 2006 c. 46, section 658
• legislation.gov.uk: Act 2006 c. 46, section 659
• legislation.gov.uk: SI 2008/3229, schedule 1
• legislation.gov.uk: SI 2008/3229, schedule 3
• legislation.gov.uk: SI 1985/805
• legislation.gov.uk: SI 2008/3229, regulation 1
• legislation.gov.uk: Act 2006 c. 46, section 662
• legislation.gov.uk: Act 2006 c. 46, section 663
• GOV.UK: Notify a cancellation of shares public company sh07
• legislation.gov.uk: Act 2003 c. 1, section 423

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.