Through this article, I intend to summarize relevant provisions relating to Bonus Shares and Right Issue as per the Companies Act 2013 and its latest Amendments.
Issue of bonus shares
Sec 63
1. A company can issue fully paid-up bonus shares to its members, in any manner whatsoever, out of-
a. its Free reserves
b. the securities premium account or
c. the capital redemption reserve account:
Provided that no issue of bonus shares shall be made by capitalizing reserves created by the revaluation of assets.
2. No Company shall capitalize its profits or reserves for the purpose of issuing fully paid bonus shares under sub-section (1) , unless-
a. it is authorized by its articles
b. it has, on the recommendation of the Board, been authorized in the general meeting of the company;
c. it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it ;
d. it has not defaulted in respect of the payment of statutory dues of the employees, such as contribution to, provident fund, gratuity, and bonus;
e. the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;
f. it complies with such conditions as may be prescribed.
3. The bonus shares shall not be issued in lieu of dividend.
Accounting Treatment
When fully paid bonus shares are issued.
1.When issued at par.
i. Capital Reserve A/C…. Dr
Securities Premium Reserve A/C…..Dr
Capital Redemption Reserve A/C…. Dr
Debenture Redemption Reserve A/C…Dr
General Reserve A/C …….Dr
Statement of Profit and Loss A/C…Dr
To Bonus to Shareholders A/C
(On the declaration of bonus out of reserve)
ii. Bonus to Shareholders A/C… .Dr
To Share Capital A/C
(On the issue of bonus shares)
2. When issued at a premium.
Securities Premium Reserve A/C…..Dr
Capital Redemption Reserve A/C…. Dr
Sinking Fund A/C ………Dr
General Reserve A/C …….Dr
Statement of Profit and Loss A/C…Dr
To Bonus to Shareholders A/C
On the declaration of bonus out of reserve)
ii. Bonus to Shareholders A/C… .Dr
To Share Capital A/C
To Securities Premium Reserve A/C
(On the issue of bonus shares at a premium)
When fully paid bonus shares are issued to existing shareholders, they get additional shares without paying cash.
Right Shares
Sec 62.
(1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of further shares, such shares shall be offered-
a.to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:-
i. The offer shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;
ii. Unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favor of any other person, and the notice referred to in clause(i) shall contain a statement of this right;
iii. After the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not disadvantageous to the shareholders and the company.
CAclubindia
