Company Law (B.Com) 3rd Sem Previous Year Solved Question Paper 2022

(a) Forfeiture of Shares:

Forfeiture of shares is a legal process by which a company cancels and takes back shares that a shareholder has failed to pay for or has not complied with certain terms and conditions specified in the company’s Articles of Association. 
- Reasons for Forfeiture: Shares may be forfeited for various reasons, including non payment of calls on shares, violation of company rules, or non-compliance with specific contractual obligations.
- Notice to Shareholder: Before shares are forfeited, the shareholder in question is typically issued a notice, specifying the reasons for forfeiture and a specific time period to rectify the issue.
- Reimbursement: If a shareholder fails to rectify the issue or pay the required amount within the specified time, the shares are forfeited. The shareholder loses the ownership and any amount already paid for the shares.
- Treatment of Forfeited Shares: Forfeited shares can be reissued or sold by the company, often to new shareholders, or held as treasury shares. The proceeds from the sale of forfeited shares can be used to offset any unpaid amounts by the shareholder.
- Legal Formalities: The forfeiture process must follow the legal and procedural requirements outlined in the company’s Articles of Association and local corporate laws.

(b) Buyback of Shares:
Buyback of shares, also known as share repurchase, is a corporate action in which a company repurchases its own shares from its shareholders. Here's a brief note on buyback of shares:
- Motives for Buyback: Companies may choose to buy back shares for various reasons, including returning surplus cash to shareholders, boosting the share price, increasing earnings per share, or managing the company’s capital structure.
- Sources of Funding: Buybacks are typically funded from the company’s retained earnings or other distributable reserves. It may also involve the use of debt or the proceeds from the sale of assets.
- Regulatory Framework: The buyback of shares is subject to regulatory and legal constraints, including the maximum amount of buybacks a company can make, pricing rules, and notification requirements to regulatory authorities.
- Types of Buybacks: Buybacks can take various forms, such as open market purchases (buying shares on stock exchanges), tender offers (inviting shareholders to submit their shares), or off-market deals.
- Impact on Ownership: Buybacks reduce the number of outstanding shares, which can concentrate ownership and increase the ownership percentage of remaining shareholders.
- Tax Implications: The tax treatment of buybacks can vary by jurisdiction, impacting the tax liabilities of both the company and shareholders.

Both forfeiture of shares and buyback of shares are significant corporate actions that have implications for a company’s capital structure, ownership, and financial health.