Issue of Bonus Share by companies to its members

Monika Bahuguna | Last updated: 24 July 2023

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Quick Summary

Companies can issue bonus shares to members using their free reserves, securities premium account, or capital redemption reserve. However, reserves from asset revaluation cannot be used. Before issuing, companies must ensure their Articles of Association permit it, have board and member approval, and have no defaults in payments like interest, principal, or statutory employee dues. Once the board recommends a bonus issue, it cannot be withdrawn.

Bonus issue under section 63 of Companies Act, 2013 read with rule 14 of companies (Share capital and Debentures) Rules, 2014

A company may issue fully paid bonus shares to its members out of:

Free Reserves ;
Security Premium Account or
Capital Redemption Reserves:

However, no issue of bonus shares by capitalizing reserves created by the revaluation of assets.

Company Bonus Shares: Rules and How to Issue

Prior Conditions Before Issuing Bonus Shares

Authorised by AOA;
Recommended by Board and approved by members ;
No default in payment of interest, principle of fixed deposit, or debt securities issued
No default in payment of statutory dues of employees.
No partly paid up shares
Once recommended by the board cannot be withdrawn (RULE:14)

NOTE: No bonus in lieu of dividend is allowed.

PROCEDURE FOR BONUS ISSUE

Convene a Meeting of the Board of Directors.
Convene Extra Ordinary General Meeting.
Filing Form MGT-14 with ROC: within 30 days of passing SR

Attachments:

CTC of BR
CTC of SR

4. Filing Form PAS-3 with ROC [Section 39(4) & Rule 12]:

The Company shall file Form PAS-3 within 30 days of passing of the resolution for allotment of shares with following attachments:

Copy of Resolution passed in General Meeting authorizing the issue of bonus shares
Copy of Board Resolution for Allotment of Shares
List of Allottees
Any other mandatory attachment if any.

5. Issue of Shares Certificates: within 2 months.

6. Maintenance of Register of Members.

out of -

(i) its free reserves
(ii) the securities premium account; or
(iii) the capital redemption reserve account: