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Companies Act, 1956, does not prescribe any specific procedure or conditions for issue of bonus shares except that Table A contains provision relating to capitalization of profits. Companies Act, 2013 has detailed the conditions under Sec.63 read with relevant (draft) rules issued there under for issue of bonus shares and also the sources from which bonus issue can be made.

Bonus issue refers to a further issue of shares made by a company having share capital to its existing share holders without receipt of any consideration from the shareholders for issuance of the shares. It is an offer of free additional shares to existing shareholders in proportion to their holdings. For example, the company may give one bonus share for every five shares held. These are company's accumulated earnings which are not given out in the form of dividends, but are converted into free shares.

While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company. Also the ratio of shares held by each shareholder remains constant.

Companies issue bonus shares to encourage retail participation and increase their equity base. When price per share of a company is high, it becomes difficult for new investors to buy shares of that particular company.

Conditions for Bonus Issue

• Only fully paid up bonus shares can be issued to the members of the company.

• Articles to provide for issue of bonus shares

• Bonus issue must be authorised by the members of the company on recommendation of Board.

• Company should not have defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it.

• Company should not have defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus.

• Partly paid-up shares, if any outstanding on the date of allotment, should be made fully paid-up.

• The bonus shares shall not be issued in lieu of dividend.

Sources for issue of bonus shares

• Free reserves

• Securities Premium Account

• Capital Redemption Reserve Account

• No issue of bonus shares shall be made capitalizing reserves created by the revaluation of assets.

Checklist for issue of Bonus Shares

• Check availability of resources for issue of Bonus shares.

• Check eligibility of the company for issuing bonus shares like provision in AOA, no default in payment of dues, no partly paid up shares etc.

• Check whether the authorized capital is sufficient for issue of bonus shares

• Decide on the quantum of issue

• Convene Board Meeting to seek Board’s approval for issue of bonus shares and to schedule thegeneral meeting for seeking member’s approval.

• Convene general meeting and seek member’s approval for issue of bonus shares.

• Convene Board meeting to allot shares

• File return of allotment with Registrar of Companies within 30 days of making allotment.

• Issue share certificates, update registers and minutes book.

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(Practising Company Secretaries )
Category Corporate Law   Report

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