issue of bonus shares

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CS Ashish Jain (Querist)

27 August 2009 what are the sources from which bonus shares can be issued in case of a unlisted company and can revaluation reserve be utilised to issue bonus shares.

Ankur Garg

Ankur Garg (Expert)

27 August 2009 Bonus shares are issued by cashing in on the free reserves of the company. The assets of a company also consist of cash reserves. A company builds up its reserves by retaining part of its profit over the years (the part that is not paid out as dividend). After a while, these free reserves increase, and the company wanting to issue bonus shares converts part of the reserves into capital.

Bonus shares are issued by converting the reserves of the company into share capital. It is nothing but capitalization of the reserves of the company.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

27 August 2009 As per SEBI guidelines, 2000 bonus shares cannot be issued from revaluation reserves. However supreme court says the revaluation reserve can be utilized for the purpose of issuing fully paid-up bonus shares.

Citation:- Bhagawati Developers Vs. Pearless General Finance and Investments Co (2005) 62 SCL 574 (SC).

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