Bonus share issue by a private co.

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Querist : Anonymous

Querist : Anonymous (Querist)

30 January 2013 What is the minimum time gap between two issue of bonus shares?
Is there any specific provision for private co.?
and related conditions?

Ajay Mishra

Ajay Mishra (Expert)
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01 February 2013 Hi

The Companies Act, 1956 does not contain a separate set of sections dealing with bonus shares. The Act though has made references to bonus issue in its certain sections.
Issue of bonus shares is a common feature and it takes place when the company accumulates large surplus. This surplus is converted into capital and dividend among members in proportion to their rights as fully paid bonus shares. Bonus issue is also known as capitalization issues as the purpose behind this is capitalize profits which are available in the hands of company after the distribution of profits as dividends to its shareholders.
By issue of bonus shares value of shares is likely to reduce proportionately, i.e. in the ratio number of bonus shares bear to increased number of shares after bonus issue. {Chandrakant Mulraj v Tata Engg. & Locomotive Co. Ltd. (1985) 58 Comp Cas 320 (Bom)}

Bonus shares are capital in the hands of shareholders and not dividend; bonus shares do not give them an immediate right to a larger amount of the existing assets but simply confer a title to a larger proportion of the surplus assets in the event of winding up. {IRC v Blott (1921) 2AC 171 (HL)}.

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