ISSUE OF BONUS
SHARES-OVERVIEW
A company may
issue fully paid-up bonus shares to its members, in any manner whatsoever, out
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(i)
its free reserves;
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(ii)
the securities premium account; or
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(iii)
the capital redemption reserve account:
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Provided that no issue of bonus shares shall be made by capitalising reserves
created by the revaluation of assets.
(2) No company
shall capitalise its profits or reserves for the purpose of issuing fully
paid-up bonus shares under sub-section (1), unless—
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(a)
it is authorised by its articles;
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(b)
it has, on the recommendation of the Board, been authorised in the general
meeting of the company;
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(c)
it has not defaulted in payment of interest or principal in respect of fixed
deposits or debt securities issued by it;
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(d)
it has not defaulted in respect of the payment of statutory dues of the
employees, such as, contribution to provident fund, gratuity and bonus;
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(e)
the partly paid-up shares, if any outstanding on the date of allotment, are
made fully paid-up;
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(f)
it complies with such conditions as may be prescribed.
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(3) The bonus
shares shall not be issued in lieu of dividend.
Benefits of Issue of Bonus Shares
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1.
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To Encourage retail participation, increase of
the equity base of the Company.
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2.
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Increase in number of shares by bonus issue,
reduces the price per share. It becomes easy for an investor to buy shares of
that particular company.
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3.
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Bonus shares is sign of good health of the
Company. It is a signal that Company is in position to service its larger
equity.
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4.
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The Investor doesn’t need to pay any tax upon
receiving the bonus shares.
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5.
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Issuing additional shares and using cash for the
business growth of the Company increases the investor belief in the operation
of the Company.
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6.
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Bonus issue allows the company to conserve cash
for reinvesting back into the business.
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7.
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Issue of bonus share increases the number of
outstanding shares and participation of smaller investor in the Company
shares and hence enhances the liquidity.
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8.
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Increase in Issued share capital increases the
perception of Company size.
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Source of Bonus Issue:
Fully
paid-up bonus shares can be issued out of following sources:
(i)
Capital redemption reserve
(ii)
Security premium** (realised in cash)
(iii) Capital reserve* (realised in cash)
(iv)
Profit and loss account
(v)
General reserve
(vi)
Investment allowance reserve
(vii)
Sinking fund for redemption of debentures (after redemption)
(viii)
Development rebate reserve.
COMMENT:
*Capital
reserve not realised in cash cannot be utilised for issuing bonus shares e.g.
capital reserve created by revaluation of fixed assets.
**
Security premium not realised in cash cannot be utilised for issuing bonus
shares.
Partly
paid-up bonus shares can be issued from the following sources:
(i)
Capital Reserve* (realised in cash)
(ii)
Profit and loss account
(iii)
General reserve
(iv)
Investment allowance reserve
(v)
Development rebate reserve
(vi)
Sinking fund for redemption of debentures (after redemption)
COMMENT:
1.
Security premium account and capital redemption reserve account cannot be
utilised for issuing partly paid bonus shares.
2. If
a choice is to be made between revenue reserves and capital reserves; the
capital reserves are normally utilised first as far as legally permissible.
Note:
1.The Company shall not issue bonus shares by
capitalizing reserves created by the revaluation of assets.
2. The Company shall not issue bonus shares in lieu
of dividend.
Conditions for Issue of Bonus shares
A company may issue fully paid bonus shares,
subject to the following conditions:
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1.
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The Company must be authorized by Articles of
Association of the Company to issue bonus shares, if not than the company
must alter its Articles of Association as per the provisions of section 14 of
the Companies Act, 2013.
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2.
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Whether the Authorized share capital of the
Company is sufficient for issue of bonus Shares, if not than authorized
share capital of the company has to be increased to create adequate number of
shares.
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2.
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The Board of Directors in their meeting has to
recommend the issue of Bonus shares.
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3.
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The Company shall authorize bonus issue of shares
in its General Meeting.
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4.
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The Company has not defaulted in repayment of the
deposits.
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5.
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The Company has not defaulted in debt securities.
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6.
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The Company has not defaulted in respect of
payment of statutory dues of the employees such as contribution to PF,
Gratuity and Bonus.
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7.
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The existing shares are fully paid up .All partly
paid up shares are to be made fully paid prior to the announcement of any
bonus shares.
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Procedure/Checklist for Issue of Bonus Shares
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1.
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Source out of which the bonus issue is to be made
a) Current profit value.
b) Current Reserve value.
c) Current Securities Premium Account.
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2.
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Quantum of Issue
a) No. of Shares.
b) Nominal Value per shares
c) Total shares
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3.
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Issuing Notice of Board meeting (at least 7 days
before the meeting of the Board) as per section 173(3)of Companies Act, 2013.
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4.
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Holding the Board Meeting
a) For Recommending Issue of Bonus shares.
b) For deciding the ratio of shares offering to
the shareholders.
c) For Fixing the Date of General Meeting for
seeking the consent of the members
i. For issue of bonus shares.
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5.
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Sending the Notice of EGM to all the directors,
members and auditors of the Company, along with the Explanatory statement,
(at least 21 clear days) before the EGM meeting, for considering
the special business of issue of bonus shares.
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6.
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Filing E Form MGT-14 with the Registrar of
Companies within 30 days of passing of the Board Resolution for issue of
bonus share
Attachments to E Form MGT-14
a) Board Resolution for Issue of shares.
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6.
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Convening EGM for passing of the Ordinary
Resolution for seeking the approval of the members for issue of bonus shares.
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8.
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Issuing the notice of Board meeting (at least 7
days before the Board meeting) as per provision of section 173(3) of
Companies Act, 2013.
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9.
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Holding the Board meeting for passing Board
Resolution for allotment of shares.
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10.
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As per Rule (12)(6) of the Companies (Prospectus
and Allotment of Securities )Rules, 2014 , E Form PAS-3 has
to be filed within 30 days of passing of Board Resolution for allotment
of shares along with fees as specified in Companies (registration of
Offices and Fees) Rules, 2014.
Attachment to E Form PAS-3
a) Ordinary Resolution passed by the members in
EGM, for Bonus issue of shares.
b) Board Resolution passed by the Board of
Directors , for allotment of shares
c) List of Allottees.
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11.
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Issue of Share Certificates
The Company shall issue share certificate to the shareholders
within 2 months from the date of allotment of shares.
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12.
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Making Entries in Register of Members.
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Objects of Bonus Issue:
Bonus
shares are usually made by company for following reasons:
(i)
Inexpensive:
(ii)
More Marketable:
Procedure of Bonus Issue:
I. The
authorized capital should be increased, if necessary, by passing ordinary
resolution.
II.
After passing necessary entries in the books of accounts, additional share
certificates are distributed among the existing shareholders, free of charge.
Types of Bonus Issue:
1.
Fully Paid Bonus Shares:
2.
Partly Paid Bonus Shares:
DISCLAIMER: THE
ARTICLE IS BASED ON THE RELEVANT PROVISIONS AND AS PER THE INFORMATION EXISTING
AT THE TIME OF THE PREPARATION. IN NO EVENT I SHALL BE LIABLE FOR ANY DIRECT
AND INDIRECT RESULT FROM THIS ARTICLE. THIS IS ONLY A KNOWLEDGE SHARING
INITIATIVE.
THE AUTHOR – CS DEEPAK
SETH (ASSOCIATE PARTNER HELPINGHANDS PROFESSIONALS LLP) AND CAN BE REACHED AT CONTACTHHPRO@GMAIL.COM
OR 9910248911.
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