TheTaxHeaven Dictionary - Know the meaning of tax

Forfeited Share

Forfeited Share Explanation 

If investors don't meet their payment obligations or fail to comply with purchase agreement terms, their shares can be forfeited. Forfeited shares are sanctioned by the board of directors and results in the loss of the invested amount. Sometimes, shares are forfeited when employees leave a company that gave them stock options. 


Forfeited Shares Example 

For instance, Naman plans to buy 1,000 shares of a company. He needs to pay 25% of the price immediately and 25% annually for three years. If he misses a payment, the company can forfeit his 1,000 shares, causing Naman to lose his invested money. 


Employee Share Forfeiture 

Companies may offer employees the opportunity to purchase company stock below market value. However, there may be restrictions such as a waiting period before selling the stock. If an employee leaves the company prematurely, they may have to forfeit their shares. Employees who stay with the company can fully own their shares and sell them at their discretion.