Bonus Issue

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

22 April 2010 My company is Public unlisted company please provide me

1. the provisions for the issue of Bonus shares

2. Procedure for the same

3. required resolutions etc

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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22 April 2010 GUIDELINES FOR ISSUE OF BONUS SHARES:---

1. There should be a provision in the Articles of Association of the
company for capitalization of reserves etc. If not, the company
should produce a Resolution passed at the General Body
making provisions in the Articles of Association for
capitalization.
2. Consequent to the issue of bonus shares if the subscribed and
paid up capital exceeds the authorized capital, a Resolution
passed at the General Body Meeting in respect of increase in the
authorized capital is necessary.
3. The company should furnish a Resolution passed at General
Body Meeting for bonus issue before an application is made to
the controller of capital Issues. In the General Body Resolution
the Management’s intention regarding the rate of dividend to be
declared in the year immediately after the bonus issue should be
indicated.
4. The bonus issue is permitted to be made out of free reserves
built out of the genuine profits or share premium collected in
cash only.
5. Reserves created by revaluation of fixed assets are not permitted
to be capitalized.
6. Development Rebate Reserve/Investment Allowance Reserve is
considered as free reserve for the purpose of calculation of
residual reserves test.
7. All contingent liabilities disclosed in the Audited Account
which have a bearing on the Net Profits, shall be taken into
account in the calculation of the minimum residual reserves.
8. The residual reserves after the proposed capitalization should be
at least 40% of the increased paid up capital.
9. 30 per cent of average profits before tax of the company for the
previous three years should yield a rate of dividend on the
expanded capital base of the company at 10 per cent.
10. Declaration of bonus issue in lieu of dividend is not allowed.
11. The company may make a further application for issue of bonus
shares only after 36 months from the date of sanction by the
Government of an earlier bonus issue, if any.
12. Bonus issues are not permitted unless the partly paid shares, if
any existing, are made fully paid up.
13. No bonus issue will be permitted if there is sufficient reason to
believe that the company has defaulted in respect of the
payment of statutory dues of the employees such as contribution
of provident fund, gratuity, bonus, etc.
14. Capital reserves appearing in the Balance Sheets of the
companies as a result of revaluation of assets or without accrual
of cash resources will neither be allowed to be capitalized nor
taken into account in the computation of the residual reserves of
40 per cent for the purpose of bonus issue.
15. At any one time the total amount permitted to be capitalised for
issue of bonus shares out of free reserves shall not exceed the
total amount of paid up equity capital of the company.
16. Applications for issue of bonus shares should be made within
one month of the bonus announcement by the Board of
Directors of company.
17. In cases where there is any default in the payment of any term
loans outstanding to any public financial institutions, a no
objection letter from that institution in respect of the issue of
bonus shares should be furnished by the companies concerned
with the bonus issue application.
All applications for bonus issue should be signed by a person not below the rank of
Director/Secretary together with a certificate as follows:-
I, Shri……………………………………………..in my capacity……………………
as…………………..solemnly affirm that the facts stated above are true to the best of
my knowledge and nothing has been withheld.
Signature……………………
Name in Capital Letters………………….
……………………………………..
Principal Officer of the company

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Querist : Anonymous

Querist : Anonymous (Querist)

22 April 2010 Sir can u give me the provisions for the same.

Ankur Garg

Ankur Garg (Expert)
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22 April 2010 The Companies Act, 1956 does not contain any provisions dealing with bonus shares. Section 205(3) of the Companies Act, 1956 there is no prohibition on a company to capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares or paying up any amount, for the time being unpaid, on any shares held by the members of the company.

You need to check whether your Articles of Association contains any restriction on capitalization of profits or reserves for issuing fully paid up bonus shares.

Regulations 96 & 97 of Table A to Schedule I of the Companies Act, 1956 contain provisions relating to capitalisation of profits and reserves of the company. As per these regulations the proposal to issue bonus shares has to be approved by the shareholders of the company in general meeting upon recommendation by the Board of Directors of the company However if these regulations have been excluded from the Articles of Association of the company then it shall be sufficient if the Board approves the bonus issue.

To conclude if your AOA required obtaining shareholders approval then you need to pass Ordinary Resolution and file form 23 along with form 2 for allotment otherwise it shall be sufficient to pass Board resolution for allotment of bonus shares.

Best Regards