Dear Sirs, Is it possible for a Company to issue Bonus Shares only to the Preference Shareholders of the Company? In this scenario, can a argument be valid that Preference Shareholders constitute a class in themselves and issuance of bonus shares ONLY in favour of the Preference Shareholders (disregarding the equity shareholders of the Company) will not amount to selective issuance of bonus shares. It is notable that section 63 of the Companies Act specifies " A company may issue fully paid-up bonus shares to its members, in any manner whatsoever". The term members shall include both the equity and the preference shareholders. Additionally, can a selective issuance of bonus shares be undertaken by a Company, like reliance power did selective issuance of Bonus Shares in 2008, however, there are divided legal views over such issuance.
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Issuance of bonus shares to preference shareholders only
Replies (1)
It is true that the Act does not specifically prohibit issue of bonus shares made only to preference shareholders. However, bonus shares are redeemable and the reserves from which bonus shares are issued belong to the equity shareholders. Hence it does not seem to be logical to issue bonus shares only to preference shareholders and as such it is rare in practice. Reliance Power had issued bonus shares to selected group of members other than promoters who had waived their right. You may take a suitable decision considering various provisions of Companies Act, RBI /SEBI regulations, Income Tax Act etc.
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