What is Forfeiture of Shares?
Share Forfeiture: What does it Mean?
Before the corporation may foreclose on a defaulting shareholder, it must provide that person 14 days' notice that he must pay the overdue sum, plus interest. Shares will be cancelled if payment is not received by the due date. However, if the shareholder still does not pay, the business might vote for a resolution to forfeit the shares. In case of a forfeiture, they must cancel the shares, and the Share Capital is reduced accordingly. The business does not give back the money it has taken in. The amount in the share forfeiture account is transferred to Paid-Up Capital in the Notes to Accounts on 'Share Capital' until the forfeited shares are reissued.
In the Event of a Forfeiture of Shares Journal Entry Must be Made
A Share Forfeiture Requires a Corresponding Journal Entry.
Reissuing forfeited shares is a process, and it's important to understand the associated share forfeiture entry. In most cases, firms will issue forfeited shares at a premium, which will be explained further below.
1. When Forfeiture of Shares Issued at Par
The company credits the Forfeited Shares Account
Shares Allotment Amount and Shares Call Account
2. Forfeiture of Shares that were initially issued at Premium
The Securities Premium amount has been received:
Securities Premium amount has not been received:
Forfeiture of Shares Issued at a Premium
During the Forfeiture of Premium Shares, a firm has two primary choices. It is contingent upon the payment of a security premium being cleared. There are two possible outcomes, both of which are detailed here.
1. Upon Payment of the Security Premium
The account used to track the company's share capital is then debited for the whole amount of its share capital and the called-up payment. It's worth noting that this sum is automatically deposited into each applicable account. Forfeiture and reissue of shares have a lower premium than the amount obtained in the allotment process, while First Call Shares have a higher premium than the amount received in the final call process.
2. The Amount of the Security Premium Was Not Received
An extra step is required here since they did not receive the security premium. The First call and Final call accounts, the Share allotment account, any fees associated with the allocation, and the Forfeited Shares account are all debited for the number of shares that have been called up. The premium for the security is also deducted from the share capital account.
How should Share Forfeiture be Handled Financially?
What are the Financial Implications of Forfeiture of Shares?
Although the accounting entries associated with the issue of forfeiture and reissue of shares have been detailed above, the following accounting treatments should be considered. All these corrections, including reversing the entry for forfeited Shares, take effect immediately.
The amount of the call price for the shares that have been surrendered is deducted from the capital account.
This aggregate Forfeiture call amount is deposited to the Forfeiture account associated with the shares subject to the call.
It is crucial to note that they only kick in if the shareholder or owner cannot pay the called-up sum. It is common practice for businesses to require shareholders to provide advance notice before their stock is sold.
Conclusion
If a shareholder does not fulfil the company's purchasing, holding or selling requirements, the company might force the sale of their shares. Many stipulations must be met, including the payment of call money, the transfer of Shares within a limited time and the prohibition of sales. Importantly, if a member's shares are forfeited, they will not be liable for any unpaid balance or profit. Potential causes of Forfeiture include neglecting to pay fees or falling behind on payments.
FAQs on Formal vs. Matrix Organizations
1. What is a formal organisational structure?
A formal organisational structure is a system of well-defined jobs, each with a fixed measure of authority, responsibility, and accountability. It is deliberately planned by top management to achieve organisational goals. Key features include a clear chain of command (scalar chain), unity of command, and a focus on established rules and procedures. Common examples are functional and divisional structures.
2. What is a matrix organisational structure and how does it differ from a formal one?
A matrix organisational structure is a hybrid model that combines two types of formal structures, typically functional and project-based. The key difference is that employees in a matrix structure have two managers—a functional manager and a project manager. This is known as dual reporting. In contrast, a traditional formal structure strictly follows the principle of unity of command, where each employee reports to only one superior.
3. Why would a company choose a complex matrix structure over a simpler formal structure like functional or divisional?
A company opts for a matrix structure when it needs to manage large, complex projects that require input from various departments. It is ideal for dynamic environments where resource sharing and collaboration are critical. This structure allows for:
- Efficient use of specialised personnel across different projects.
- Enhanced flexibility and responsiveness to market changes.
- Improved communication and coordination for project-specific goals.
4. Can you give an example of a company that uses a matrix structure?
Yes, many multinational corporations and project-based companies use a form of the matrix structure. For instance, global technology companies like Philips have historically been classic examples. Similarly, large engineering firms, consulting firms (like PwC or Deloitte), and aerospace companies often adopt a matrix structure to assign specialists from different fields (e.g., marketing, finance, and engineering) to specific client projects.
5. What are the main conflicts that can arise in a matrix organization due to its dual-reporting feature?
The primary conflict in a matrix organization stems from its dual-reporting system. An employee receiving instructions from both a functional and a project manager can lead to several issues:
- Conflicting Priorities: The project manager focuses on project deadlines, while the functional manager focuses on departmental standards and overall workload.
- Power Struggles: The two managers may compete for authority over the employee and project resources.
- Role Ambiguity: The employee may be confused about whose instructions to prioritise, leading to stress and reduced efficiency.
6. What are the different types of matrix organizations?
Matrix organizations are typically categorized based on the level of power held by the project manager versus the functional manager. The three main types are:
- Weak Matrix: The functional manager retains most of the power and control over resources. The project manager acts more as a coordinator.
- Balanced Matrix: Power is shared equally between the project manager and the functional manager, requiring them to collaborate on decisions.
- Strong Matrix: The project manager has primary authority and control over the project, its budget, and its team. The functional manager's role is mainly to provide technical expertise and resources.
7. In what situations is a traditional formal structure more effective than a flexible matrix structure?
A traditional formal, hierarchical structure (like a functional structure) is more effective in stable, predictable environments. It excels in situations where:
- Tasks are routine and do not require intense cross-functional collaboration.
- Efficiency and cost control through standardisation are the primary business goals.
- A clear chain of command and quick, top-down decision-making are essential for operations.
