current year profit

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vatsal dave (Querist)
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04 November 2009 hello,

current year profit is called accumuleted profit? for issue of bonus share current year profit used by board of directors?

Ankur Garg

Ankur Garg (Expert)
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04 November 2009 Hi,

current year profit is not called accumuleted profit.

Bonus may also be issued from the reserves created out of revaluation of capital
assets
The Supreme Court held in case of Bhagwati Developers v Peerless General Finance & Investment Co. Ltd and Others (2005) 62 SCL 574 (SC) decided on 9th August, 2005 that proviso of section 205(3) permits capitalisation of profit or reserves of a company for the purpose of issuance of fully paid up shares. However, the shares issued by way of capitalisation of revaluation reserves will not be considered for promoters contribution under the SEBI guidelines.

The paid up share capital after bonus issue must be within the authorized share capital of the company, otherwise authorised share capital of the company shall have to be increased at first place and then the company can go in for a bonus issue.
In the case of the allotment of bonus shares, a return of allotment shall be filed electronically in the prescribed e-Form 2 enclosing with the resolution of the Board of director authorising the issuance of bonus shares along with the requisite filing fee as per Schedule X to the Companies Act, 1956 within a period
of thirty days after the date of allotment. Such return shall state the number and
nominal amount of shares comprised in such allotment and the names, addresses
and occupations of the allottees. [Section 75(1)(c)(i)]

Ankur Garg

Ankur Garg (Expert)
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04 November 2009 Secretarial checklist for issue of Bonus shares
The company may capitalise its profit/reserves by issuance of Bonus Shares to the members of the company subject to the following terms and conditions fulfilled by the company:â€”

1. A company in terms of its Articles of Association may capitalise its profit/reserves created out of the genuine profit.

2. In case of unlisted company, the Rules and SEBI guidelines are not applicable.

3. Declaration of bonus shares in lieu of dividend is not allowed.

4. A company has not defaulted in payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal or redemption thereof.

5. A company should not have any default in respect of payment of statutory dues to the employees such as P.F., Bonus, Gratuity, etc. as may be applicable to the company.

6. A company has to implement its decision for issuance of bonus shares within 6 months from the date of the Board meeting.

7. Once the bonus issue have been considered and declared the company cannot reverse its decision.

Procedural steps for issuance of Bonus shares

1. The Board of directors of the company at their meeting must consider the matter related to the availability of amount in current year profit and issuance of bonus shares.

2. It is advisable that the company should get report of the Auditors relating to the amount available for distribution as bonus shares to the members.

3. The Board should pass following necessary resolutions at their meeting:â€”

(a) approval of the bonus issue subject to the approval in General Meeting.
(b) approve the record date to determine the entitlement of bonus shares.
(c) approval of the notice for the AGM/EGM

4. Send intimation of such proposal to the stock exchanges where securities of the company are listed before and after the Board meeting.

5. On the due date the company hold general meeting and pass the necessary resolution.

6. If shares have to be issued to NRIs/Non-residents, make an application to the RBI for seeking its consent for such issue.

7. After the record date, a complete list of all members, who are entitled to receive the bonus shares, is prepared.

8. Submit an application to the Stock Exchange for listing of bonus shares.

9. Submit Corporate Action Form to the CDSL and NSDL for admission of new capital.

10. While finalizing list of persons entitled to receive the bonus shares, provisions of section 206A of the Act shall be kept in mind i.e. bonus shares in respect of those shares which have been lodged with the company for registration of transfer.

11. The Board of directors of the company passes a resolution for allotment of shares.

12. A return of allotment is filed in e-Form 2 with the ROC within 30 days of the allotment being made.

13. File e-Form 23 to ROC within 30 days from the date of the general meeting.

14. Share certificates are issued to the allottees in accordance with the Companies (Issue of Share Certificate) Rules, 1960 and give credit to the Members through CDSL and/or NSDL in case of having shares in the electronic mode.

15. Fraction of shares resulting on issue of bonus shares shall be dealt as decided in the general meeting. Usually, all fractions are collected and disposed of by the company in the market and realization on such disposal is distributed among the shareholders in the proportion of their entitlement.

16. Make suitable entries in the register of members.

17. In case of listed companies, application shall be made to stock exchanges for final listing and permission for trading of bonus shares and a compliance report be sent to the SEBI.

18. Submit a certificate to the SEBI of compliance of provisions of the SEBI Bonus Issues Guidelines duly signed by a company and counter signed by a statutory auditor or a company secretary in practice.

Best Regards

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