Forfeiture of a share

What it means

Forfeiture of a share, known in Slovak law as kadučné konanie, is the procedure by which a limited liability company expels a member who has not paid their cash contribution even within an additional period. The name comes from the Latin caducus, meaning lapsed, because the member loses both the stake and what they have already paid.

It is a special case of the expulsion of a shareholder governed by the Commercial Code. Unlike expulsion by a court for a serious breach of duties, here the company itself decides through the general meeting, and the only ground is late payment of the contribution.

The purpose is to protect the company and the other members who have paid their contributions. An unpaid contribution means that the registered capital shown in the commercial register is not backed by real money, so the company lacks the funds the members counted on when it was founded.

How it works in practice

First the company must call on the member in writing to pay within an additional period and warn them that otherwise they may be expelled. If they still do not pay, the general meeting may resolve to expel them; the member concerned does not vote on that resolution.

After expulsion the share passes to the company. Within the statutory period it must transfer it to another member or a third party, a transfer of the business share, or proceed with a reduction of registered capital by the unpaid contribution.

The change must be entered in the commercial register and reflected in the books. The claim for the unpaid contribution is carried as a subscribed capital receivable and, after expulsion, is settled depending on whether the share is sold or the capital is reduced.

What to watch out for

An expelled member loses more than the share. The company does not refund the part already paid, and if the acquirer of the share does not pay the rest, the former member may be liable for it. A member who cannot pay should therefore negotiate a transfer of the share or a change in the contribution themselves.

Formal errors, such as a demand without a warning of the consequences, too short a period or an improperly convened general meeting, can make the resolution invalid. In a dispute over expulsion it is important that every step is documented in writing and properly served.