Bonus Shares are shares given to the existing shareholders in proportion to the number of shares they hold. They are additional shares given to the current shareholders. It is the further issue of shares by a company to its existing shareholders without any receipt of any consideration. For Example if investor holds 100 shares of a company and a company declares 2:1 bonus offer, his holding of shares will now be 300 instead of 100.
While Issue of Bonus Shares increases the total number of shares issued and owned, it does not increase the value of the Company, the ratio of number of shares held by each shareholder remains constant.
There were no specific section under Companies Act, 1956 which deals with Issue of Bonus shares, the companies were following norms prescribed by the Controller of Capital Issues. Once SEBI came into existence and Controller of Capital abolished, Unlisted Private Companies and Public Limited Companies were free to issue Bonus shares. The Companies Act, 2013 has introduced section 63 read with Rule 14 The Companies (Share Capital and Debentures) Rules,2014 to deal exclusively with issue of Bonus shares.
Benefits of Issue of Bonus Shares
| 1. | To Encourage retail participation, increase of the equity base of the Company. |
| 2. | 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. |
| 3. | Bonus shares is sign of good health of the Company. It is a signal that Company is in position to service its larger equity. |
| 4. | The Investor doesn’t need to pay any tax upon receiving the bonus shares. |
| 5. | Issuing additional shares and using cash for the business growth of the Company increases the investor belief in the operation of the Company. |
| 6. | Bonus issue allows the company to conserve cash for reinvesting back into the business. |
| 7. | Issue of bonus share increases the number of outstanding shares and participation of smaller investor in the Company shares and hence enhances the liquidity. |
| 8. | Increase in Issued share capital increases the perception of Company size. |
The Source out of which Bonus shares shall be issued
As per section 63(1) of the Companies Act, 2013, the Company may issue fully paid up bonus shares to its members out of any of the following:
| 1. | Free Reserves of the Company built out of genuine profit of the Company (not revaluation reserves) |
| 2. | The Securities premium Account– For Listed Companies the realizable cash portion of the securities premium account and for Unlisted companies whether in cash or others |
| 3. | The Capital Redemption Reserve Account which may be created from Buy Back of shares or redemption of preference shares out of profits, may be utilized for issue of bonus shares. |
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:
| 1. | 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. |
| 2. | 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. |
| 2. | The Board of Directors in their meeting has to recommend the issue of Bonus shares. |
| 3. | The Company shall authorize bonus issue of shares in its General Meeting. |
| 4. | The Company has not defaulted in repayment of the deposits. |
| 5. | The Company has not defaulted in debt securities. |
| 6. | The Company has not defaulted in respect of payment of statutory dues of the employees such as contribution to PF, Gratuity and Bonus. |
| 7. | 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. |
Procedure/Checklist for Issue of Bonus Shares
| 1. | Source out of which the bonus issue is to be made
a) Current profit value. b) Current Reserve value. c) Current Securities Premium Account. |
| 2. | Quantum of Issue
a) No. of Shares. b) Nominal Value per shares c) Total shares |
| 3. | Issuing Notice of Board meeting (at least 7 days before the meeting of the Board) as per section 173(3)of Companies Act, 2013. |
| 4. | 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. |
| 5. | 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. |
| 6. | 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. |
| 6. | Convening EGM for passing of the Ordinary Resolution for seeking the approval of the members for issue of bonus shares. |
| 8. | 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. |
| 9. | Holding the Board meeting for passing Board Resolution for allotment of shares. |
| 10. | 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. |
| 11. | Issue of Share Certificates
The Company shall issue share certificate to the shareholders within 2 months from the date of allotment of shares. |
| 12. | Making Entries in Register of Members. |
Drafts
1.Notice of the Board Meeting at least 7 days before the Board Meeting
| XYZ Private Limited
NOTICE To, Dear Sir, Notice be and is hereby given to the members of Board of Directors of the Company that a meeting of the Board of Directors of the Company will be held at the registered office of the Company at ……………………… on Monday ……………. at time…………. to transact the business mentioned below – You are requested to make it convenient to attend the Board Meeting. 1. To elect the Chairman of the Meeting. 2. To grant leave of absence, if any. 3. To Confirm the minutes of the last Board Meeting. 4. To Recommend Issue of Bonus shares as per section= 63 of the Companies Act, 2013. 5. To Fix the date of Extra Ordinary General Meeting for obtaining members consent for issue of Bonus shares. 6. To consider any other business with the permission of the Chair. Place: Date: For XYZ Private Limited (Director)
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2. Board Resolution for recommending issue of Bonus Issue
| CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF XYZ PRIVATE LIMITED DULY CONVENED AND HELD ON MONDAY, ……DATE………. AT THE REGISTERED OFFICE OF THE COMPANY AT ………REGISTERED OFFICE…………………………….
The Chairman informed the members present that as the Company is getting many new projects and that Company has achieved a decent profit during the financial year 2017-18. The Board of Directors recommends for issuing bonus share of ………………No. ………. equity shares to be distributed among the existing shareholders of the company. Thus board of Directors is hereby proposing to seek the approval of the shareholders at the Extra Ordinary General Meeting to be held on ……………date……..Thereafter a brief discussion on the subject matter took place and the following resolution was passed. “RESOLVED THAT in pursuant to the provisions of section 63 and other applicable provisions, if any, of the Companies Act, 2013 read with Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014 (including any statutory modification or re-enactment thereof for the time being in force), and subject to the articles of association and such other approvals, consents, permissions as may be necessary, Board of Directors be and is hereby proposing to capitalize the sum of Rs. ………………….. /- out of the reserves of the Company for the purpose of issue bonus shares to the existing shareholders of the Company in proportion of 1:3 i.e.( 1 (One) equity shares of nominal value Rs. 100/- each for every 3( three )equity shares of nominal value of Rs. 100/-) “RESOLVED FURTHER THAT the Board of Directors confirm with reference to the issue of bonus shares that:
“RESOLVED FURTHER THAT the draft resolution for issue of Bonus shares have been placed before the members of Board for their approval, which shall be further circulated along with the notice to the members for their approval.” “RESOLVEDD FURTHER THAT the Extra Ordinary General Meeting of the Members of Company be convened on Friday, …date……….. at the Registered Office of the company to pass the above mentioned Resolution and to get approval of the members of the Company.” “RESOLVED FURTHER THAT the draft notice of Extra Ordinary General Meeting as placed before the Board together with the explanatory statement thereto be and is hereby approved.” “RESOLVED FURTHER THAT Mr…………..Director of the Company be and is hereby authorized on behalf of the Company to file the necessary E -Form MGT-14 with the Registrar of Companies and to do all such acts, deeds, matters and things as deem necessary or expedient to give effect to the above resolution”. //Certified True Copy// XYZ Private Limited
Director |
3. Notice of EGM at least 21 clear days before the EGM Meeting
| XYZ Private Limited
Notice Notice is hereby given that the Extra Ordinary General Meeting of the members of XYZ Private Limited will be held on Friday, …………… at the Registered Office of the Company at ………………………………. India to transact the following business:- IAL BUSINESS 1. To Consider Issue Of Bonus Shares To consider and, if thought fit, to pass, with or without modification(s), following resolution as Ordinary Resolution: “RESOLVED THAT pursuant to the provisions of section 63, and other applicable provisions, if any, of the Companies Act, 2013 read with Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014 (including any statutory modification(s) or re-enactment thereof for the time being in force, articles of association, consent of the shareholders be and is hereby accorded that a sum of Rs. …………………./- be capitalized out of the reserves of the Company for the purpose of the issue of Bonus shares to be distributed amongst the existing equity shareholders of the Company in the proportion of 1:3 i.e. (01(One) new equity shares of nominal value of Rs. 100/- each for every 03 (three) existing equity share of nominal value of Rs. 100/- each.” “RESOLVED FURTHER THAT draft resolution stating Board approval of the issue of bonus shares have been provided along with this Notice.” “RESOLVED FURTHER THAT Mr……………………Director of the Company be and is hereby authorized on behalf of the Company to file the necessary E -Form MGT-14 with the Registrar of Companies and to do all such acts, deeds, matters and things as deem necessary or expedient to give effect to the above resolution”. NOTES: 1. The Explanatory Statement pursuant to Section 102 of the Companies Act, 2013, setting out material facts relating to the Business to be transacted at the Extra Ordinary General Meeting (“EGM”) is annexed hereto. 2. A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote instead of himself and the proxy need not be a member of the company.. 3. A proxy in order to be effective must be deposited at the registered office of the Company not less than Forty-Eight hours before the commencement of the Meeting. Explanatory Statement (Pursuant to the provisions of Section 102 of the Companies Act, 2013) Item No: 01 To Consider Issue of Bonus Shares The Company has registered a decent profit in the financial year 2017-18 with the continuing support of the shareholders of the company. Thus the Board recommends to issue bonus share of ………………….. to its existing equity shareholders of the Company in the proportion of 1:3 i.e., i.e.( 1 (One) equity shares of nominal value Rs. 100/- each for every 3( three )equity shares of nominal value of Rs. 100/-)credited as fully paid up ,in proportion of the shares held by them. Pursuant to the provision of section 63 of the Companies Act 2013, for the said issue of Bonus shares the Board requires the approval of the shareholders at the ensuing Extra Ordinary General Meeting of the Company to be held on …………date……….. The Board recommends this resolution as set forth in Item 1 of the accompanying notice for approval of the members of the Company by way of Ordinary Resolution. None of the other Directors or Key Managerial Personnel of the Company or their relatives are concerned or interested or deemed to be concerned or interested in passing of this resolution, except to the equity shares held by them in the Company. |
4. EGM Meeting for passing of Ordinary Resolution’
| CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE EXTRA ORDINARY GENERAL MEETING OF THE SHAREHOLDERS OF XYZ PRIVATE LIMITED DULY CONVENED AND HELD ON FRIDAY ………DATE….. AT THE REGISTERED OFFICE OF THE COMPANY AT …………………………………..
Approval of Bonus Issue To consider and if thought fit, to pass with or without modification(s), the following Resolution as Ordinary Resolution “RESOLVED THAT pursuant to the provisions of section 63, and other applicable provisions, if any, of the Companies Act, 2013 read with Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014 (including any statutory modification(s) or re-enactment thereof for the time being in force, articles of association, consent of the shareholders be and is hereby accorded that a sum of Rs. ………………. be capitalized out of the reserves set free for distribution amongst the existing equity shareholders by issue of 01(One) number of new equity shares of nominal value of Rs. 100/- as bonus issue for every 03 (three) number of existing equity share of nominal value of Rs. 100/- each in ratio of of 1:3 credited as fully paid up shares to the existing shareholders of the Company in the proportion of shares held by them.” |
Board resolution for allotment of shares
| CERTIFIED TRUE COPY OF THE RESOLUTION PASSED AT THE MEETING OF THE BOARD OF DIRECTORS OF XYZ PRIVATE LIMITED DULY CONVENED AND HELD ON ……DATE………….. AT THE REGISTERED OFFICE OF THE COMPANY AT B…………………………..
“RESOLVED THAT in pursuant to the provisions of section 63 and other applicable provisions, if any, of the Companies Act, 2013 read with Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014 (including any statutory modification or re-enactment thereof for the time being in force), the relevant provisions of the Article of Association of the Company and pursuant to the passing of an Ordinary Resolution by the shareholders in Extra Ordinary General Meeting held on ………………………….. bonus equity shares of Rs. 100 each in ratio of 1.3 be and are hereby allotted to the existing shareholders of the Company as detailed below:
“RESOLVED FURTHER THAT The Equity shares being allotted hereby shall have the same rights as the existing shares and be treated for all other purposes pari passu in every aspect with the existing shares of the Company.” RESOLVED FURTHER THAT Director of the Company be and are hereby authorized to complete all necessary formalities including filing of Form PAS -3 Return of allotment pursuant to the provisions of the Companies Act, 2013 with the concerned Registrar of Companies and to do all the matters incidental, consequential and connected therewith.”
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Author Bio
How bonus share can be issued out of current profit. because, as per definition of free reserve the amount as per latest audited balance sheet
Sorry its 450 and not 447
What if AOA does not contain such clause regarding Bonus Issue. The Company will be punished under section 447?