Dear Mr. Aalhad

SEBI Guidelines will not applicable to unlisted private company. You can issue bonus shares subject to the AOA.

Regards

In the furtherance to Mr. Mishra's reply.

It is not necessary for the company to declare dividend.

and Declaration of dividend is also not pre-requiste for issue of bonus share.

So, Your company can issue the bonus share to shareholders.

But keep in mind that the bonus issue is not in lieu of previous as well as current years dividend.

For further clarification contact me.

Ankur Shah (Practicing Company Secretary)

“Guru Gautam” Bungalow, Inside Parshwa Tower,

Nr. Shyamal Cross Road, 132ft. Ring Road,

Satellite, Ahmedabad – 15

Contact: + 91-9427633901

E-mail: ankurjewel @ gmail.com

Blog: csankur.blogspot.com

 Thank you for the reply.

May I know the applicable sections or any other stuff which can be shown to other officers of the company?

SEBI provisions are applicable to the listed companies only and not to the

Private Company or Unlisted Public Company.

The provision of bonus issue in the companies act, 1956 is provided under the Section 81, Further issue of the shares.

However, the Bonus issue provisions are clarified in the SEBI's Disclosure of Investor Protection Guidelines (now changed to the Issue of Capital and disclosure requirements 2009)

Here is the Chapter XI of Issue of Capital and Disclosure Requirement, which clarifies the provision relating to bonus Issue

CHAPTER IX BONUS ISSUE

Conditions for bonus issue.

92. Subject to the provisions of the Companies Act, 1956 or any other applicable law for the time

being in force, a listed issuer may issue bonus shares to its members if:

(a) it is authorised by its articles of association for issue of bonus shares, capitalisation of reserves, etc.:

Provided that if there is no such provision in the articles of association, the issuer shall pass a

resolution at its general body meeting making provisions in the articles of associations for capitalisation of reserve;

(b) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt

securities issued by it;

(c) it has sufficient reason to believe that it has not defaulted in respect of the payment of

statutory dues of the employees such as contribution to provident fund, gratuity and bonus;

(d) the partly paid shares, if any outstanding on the date of allotment, are made fully paid up

Restriction on bonus issue.

93. (1) No issuer shall make a bonus issue of equity shares if it has outstanding fully or partly convertible debt instruments at the time of making the bonus issue, unless it has made reservation of equity shares of the same class in favour of the holders of such outstanding convertible debt

instruments in proportion to the convertible part thereof.

(2) The equity shares reserved for the holders of fully or partly convertible debt instruments shall

be issued at the time of conversion of such convertible debt instruments on the same terms or same

proportion on which the bonus shares were issued.

Bonus shares only against reserves, etc. if capitalised in cash.

94. (1) The bonus issue shall be made out of free reserves built out of the genuine profits or securities premium collected in cash only and reserves created by revaluation of fixed assets shall

not be capitalised for the purpose of issuing bonus shares.

(2) Without prejudice to the provisions of sub-regulation (1), the bonus share shall not be issued in

lieu of dividend.

Completion of bonus issue.

95. (1) An issuer, announcing a bonus issue after the approval of its board of directors and not requiring shareholders’ approval for capitalisation of profits or reserves for making the bonus issue, shall implement the bonus issue within fifteen days from the date of approval of the issue by its board of directors:

Provided that where the issuer is required to seek shareholders’ approval for capitalisation of

profits or reserves for making the bonus issue, the bonus issue shall be implemented within two

months from the date of the meeting of its board of directors wherein the decision to announce the

bonus issue was taken subject to shareholders’ approval.

(2) Once the decision to make a bonus issue is announced, the issue can not be withdrawn.

If you need further clarification than contact me.

Ankur Shah (Practicing Company Secretary)

“Guru Gautam” Bungalow, Inside Parshwa Tower,

Nr. Shyamal Cross Road, 132ft. Ring Road,

Satellite, Ahmedabad – 15

Contact: + 91-9427633901

E-mail: ankurjewel @ gmail.com

Blog: csankur.blogspot.com

 great information to read..

Can a private company issue bonus shares out of revaluation reserve.

Saurabh

Dear Friend,

Provisions of Article 96 and 98 of Table A of Schedule I of the Companies Act, 1956 deal with issue of bonus shares. In case of Private company they can issue bonus shares as per company’s articles.

BOARD RESOLUTION FOR ISSUE OF BONUS SHARES

CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF THE COMPANY HELD ON ……… AT …… P.M  AT  ITS REGISTERED OFFICE.

RESOLVED THAT the allotment of……… number of equity shares against existing ….. total equity shares existing as fully paid up in the company, be and is hereby made as Bonus Issue to the existing shareholders of the Company as on Record Date being ….. 200 in the ratio of Four equity shares for every one equity shares held (i.e. in the ratio of 4:1 shares) as per the table below:

RESOLVED FURTHER THAT the said Equity Shares shall rank pari passu in all respects and carry the same rights as the existing Equity Shares of the Company.

RESOLVED FURTHER THAT Letter of Allotment as placed before the table of the Meeting duly initialed by the Chairman for the purpose of identification be and is hereby approved and Directors of the Company be and are hereby authorised severally to issue and sign the letters of allotment to the shareholders.

RESOLVED FURTHER THAT the Common Seal of the Company be affixed, if required, on the said documents in the presence of X, Director of the Company to give effect to the above resolution.

RESOLVED FURTHER THAT the return of allotment pursuant to Section 75 of the Companies Act, 1956, in the prescribed form be filed with the Registrar of Companies, NCT of Delhi & Haryana.

CERTIFIED TO BE TRUE

For ABC Pvt Ltd

Director

Provisions contained in the Companies Act, 1956

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/shares in its certain sections. Reference may be made to section 205 of the Companies Act, 1956, which provides that dividend could only be paid out of profits. The proviso to subsection (3) of section 205 permits capitalization of profits or reserve of a
company 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.

So as per the interpretation the Companies Act permits utilization of reserve arising out of revaluation of assets for purpose of issuing fully paid up bonus shares. But one should also not forget this area is very critical and vulnerable—

1. Capitalization of profits is a process where accumulated profits and reserves are converted into capital.

2. The issue of bonus shares is permitted only out of free reserves (being built up from genuine profits of the entity) or from Share premium account (collected in cash only). It is worth to note here Capital Reserves created on revaluation of assets or without cash accrual should be ignored for the purposes of bonus issues.

Regards,

Can a Private Limited Company issue bonus share within 6 months of its date of  incorporation?

Dear Friend,

Provisions of Article 96 and 98 of Table A of Schedule I of the Companies Act, 1956 deal with issue of bonus shares. In case of Private company they can issue bonus shares as per company’s articles.

Regards

What is meant by bonus in lieu of dividend? If a company wants to issue bonus shares out of accumulated profits without declaring dividend (never declared in past)what is the legal way? Will it be enough if entire profit is transferred to general reserves just b4 issue of bonus shares by passing resolution?

 Payment of dividend is not a prerequisite for issue of bonus issues.

It is legal to issue bonus shares without declaring any dividend.

REASON FOR NOT  TO USE REVALUTION RESERVE FOR BONUS ISSUE

 Circular No. (17/32/93-CLV) issued by the Department of Company Affairs, to all Chambers of Commerce and Industries, regarding ‘Prohibition of Issue of Bonus Shares by Reserves Created by Revaluation of Fixed Assets’ which states as below:

“1.            I am directed to say that it has come to the notice of the Department that a number of unlisted companies (existing private/closely held public companies) are resorting to revaluation of their assets and issuing bonus shares therefrom. The latest SEBI’s guidelines on bonus shares dated 13.4.94, inter alia, stipulate that the bonus issue has to be made out of free reserves built out of the genuine profits or share premium collected in cash only and reserves created by revaluation of fixed assets cannot be capitalised for this purpose. These guidelines are applicable only to listed companies.

2.            This matter has been considered in the Department and the existing private/closely held and unlisted companies are hereby advised not to issue bonus shares out of the reserves created by revaluation of fixed assets.

Respected Professionals,

I have query regarding "BONUS ISSUE BY PRIVATE LIMITED COMPANY"

Whether any provisions regarding "Profitability test " is applicable  on Private limited Company if it issues Bonus Shares out of reserve and surplus?

This test provides that 30% of average profit before tax of the company for previous three accounting years should yield a rate of dividend on increased capital base of the company at 10%.

Kindly Reply.