how forfeited shares work
suppose an investor named david agrees to buy 5 000 shares of a company with a 25 initial payment requirement followed by three subsequent annual 25 installments that are due according to a schedule dictated by the company if david is derelict on a scheduled installment the company may choose to seize his entire 5 000 shares and david sadly would lose any money he previously paid corporations are not required to seize shares from delinquent shareholders and can instead offer investors grace periods in which to pay the money that is owed employee share forfeiturein certain cases companies offer employee stock purchase plans where employees may allocate a portion of their salaries toward purchasing discounted shares of a company s stock however these programs often come with restrictions in many cases a stock cannot be sold or transferred within a defined period of time after the initial purchase furthermore if an employee quits the company before a certain mandatory waiting period he may be obligated to forfeit any shares he purchased contrarily if an employee remains with the company for a stated duration of time he becomes fully vested in those shares and may cash them in at will once an employee forfeits shares of stock purchased through an employee stock purchase plan he may not ever receive those shares again should the company reissue them example of forfeited sharescompanies use stock purchase plans to inspire employee loyalty in the same vein companies offer employees bonuses in the form of restricted stock units which they incrementally distribute over time for example an employee might receive 80 restricted stock units as part of an annual bonus but in order to entice this valued employee to linger longer the stock vests the first 20 units in the second year after the bonus 20 in year three 20 in year four and 20 in year five if the employee quits after year two only 20 units of stocks would be vested and the other 60 would be forfeited reissue of forfeited sharesforfeited shares become the property of the issuing company which is entitled to either reissue the shares at par at a premium or a discount at a price below their nominal value this decision rests in the hands of a company s board of directors which usually reissues forfeited shares at a discount but if the shares were initially issued at par the maximum discount for the reissued stock is equal to the amount forfeited on the shares furthermore if a company s articles of association permits the board may reissue forfeited shares to a third party but may not reissue those shares back to the defaulting shareholder 