Can a Private Company which is not distributing dividends issue bonus shares to its members as per the new Companies Act, 2013? If yes, please explain the relevant provisions and procedures...
CA PRIYUL SHAH
(JOB)
(901 Points)
Replied 29 July 2014
The Companies Act, 2013 has introduced Section 63 to deal exclusively with Bonus Shares . Unlike Issue of Sweat equity Shares, MCA has not specified any rules to comply with. Section 63 deals with five aspects.
i. The source out which a Company could issue Bonus Shares,
ii. The source out of which a Company cannot utilize for such issue,
iii. The Secretarial formalities to be complied with and
iv. The Companies who are not eligible to issue Bonus Shares
v. Bonus Issue once issued cannot be withdrawn
i. THE SOURCE OUT OF WHICH BONUS SHARES SHALL BE ISSUED
The Company shall issue fully paid Bonus Shares out of any one of the following source:
a. Free Reserves of the Company
b. The Securities Premium Account
c. The Capital redemption reserve Account
ii. SOURCE OUT OF WHICH THE COMPANY SHALL NOT UTILISE FOR THE PURPOSE OF ISSUE OF BONUS SHARES
a. The Company shall not issue Bonus Shares by capitalizing reserve created out revaluation of Assets
b. The Company shall not issue shares in lieu of Dividend.
iii. SECRETARIAL FORMALITIES TO BE COMPLIED WITH
In order to capitalize its profits or reserves for the purpose of issue of Bonus Shares the Company has to comply with the following :
a. The Articles of Association of the Company should authorize such issue.
b. The Board has to recommend the issue of Bonus Shares
c. The Company in a general Meeting should authorize the issue of Bonus Shares
iv. COMPANY NOT ELIGIBILE IN ISSUING BONUS SHARES
A Company shall not be in a position to issue Bonus Shares if
a. It has defaulted in repayment of deposit.
b. It has defaulted deposit interest.
c. It has defaulted in debt securities.
d. It has defaulted in respect of payment of statutory dues of the employees viz., contribution to Provident fund, Bonus, gratuity.
e. Any outstanding partly paid shares remains unpaid
v. BONUS ISSUE ONCE ANNOUNCED CANNOT BE WITHDRAWN
Under Section 63(2)(f) empowers the Central Government to stipulate fresh conditions to comply with as and when required for the issue of Bonus Shares.
One such condition presently notified is that the Bonus Issue once recommended by the Board and announced by the Company, it cannot be withdrawn subsequently.
COMPLIANCE CHECK LIST AND GENERATION OF VARIOUS DOCUMENTS AND REGISTERS DURING PRE AND POST ISSUE
Once the professional understands the requirements of Section 63 as stated above, he should then have the following ‘Compliance Check List’ which will enable him to prepare the required Documents/ registers during Pre and Post Issue of Bonus Shares
Compliance Check List
1. Source out of which the bonus issue is to be made
a. Current Profit ……..Value :
b. Current Reserves……Value:
c. Current Securities Premium Account….Value:
2. Quantum of Issue:
a. No of Shares
b. Nominal Value per share:
c. Total:
3. Intended Date of Board Meeting:
a. For alteration of Articles subject to the approval of the shareholders (if required)
b. For recommending the Issue
c. Convening of EGM
4. Intended Date of EGM for considering the alteration of Article if required and/or approval of the Bonus Issue:
5. Intended Date of Board meeting for the allotment of Bonus Shares:
PRE ISSUE WORK FOR THE ISSUE OF BONUS SHARES
Once the professional prepares the compliance checklist, he could then proceed to generate the following documents during the pre issue of Bonus Shares
a. Draft Notice and the draft minutes of the Board Meeting for considering the following :
i. alteration of Articles (only when required)
ii. recommending the Bonus Issue
iii. convening of EGM
1. For alteration of Articles which do not provide for capitalization of reserves (only when required)
2. approving the Bonus Issue recommended by the Board.
b. Draft EGM Notice, explanatory Statement and the Minutes for considering the following special business
i. For alteration of Articles (which do not provide for capitalization of reserves)
ii. approving the Bonus Issue recommended by the Board.
c. Draft Notice and the Minutes of the Board Meeting for
i. Allotment of Bonus Shares
d. Filing of Form No 7.14 with the Registrar of Companies for registering the Special resolution (only when the Articles of Association is amended for making provision for capitalization of profits)
POST ISSUE OF BONUS SHARES
a. Preparation and Issue of Share Certificates in Format No.4.1
b. Making entries in the Register of Members in Format No.7.1
c. Making entries in the Register of Directors and Key Management Personnel and their Shareholdings asper Section 170
d. Filing Form No.3.3. with regard to Allotment of Bonus Shares
CAclubindia
