Meaning
Statutory provisions under Delaware General Corporation Law authorize a company’s board of directors to seize and sell the shares of any stockholder who fails to pay an agreed capital call or subscription amount. A delaware dgcl 164 forfeiture occurs when the board elects to extinguish the defaulting holder’s rights after the required notice period. This remedy is restricted to unpaid stock subscriptions where the subscriber signed a binding commitment.
It does not apply to fully paid shares or to situations where the subscription agreement specifies a different remedy.
Statutory Procedure
The execution of this remedy demands strict adherence to statutory timelines and written notification requirements. The board must deliver written notice to the subscriber at least thirty days before initiating the delaware dgcl 164 forfeiture. This notice specifies the amount due and the deadline for payment.
Corporate Remedy
The board of directors holds the ultimate authority to choose between suing for the unpaid debt or declaring the forfeiture of the stock. A delaware dgcl 164 forfeiture eliminates the need for prolonged litigation by immediately clawing back the equity from the non-paying investor. This action reduces the outstanding share count and allows the corporation to re-allot the shares to a creditworthy backstop investor.
It secures the company’s capital raise without compromising its cash positions.
Asset Realization
If the board decides to sell the forfeited shares, any excess proceeds from the sale after covering the unpaid balance must be handled according to the statute. The delaware dgcl 164 forfeiture dictates that the surplus is paid to the defaulting subscriber or retained by the corporation depending on whether the sale was private or public. This mechanism balances corporate protection with fairness to the investor.
It represents a severe remedy used primarily in distress scenarios.
