Bonus Issue:
What is a Bonus Issue: Bonus Issue is an issue of shares at free of cost. Bonus shares are issued in the form like 1:1 means- 1 extra share for 1 holding shares or 1:2 means 1 extra share for 2 holding shares, etc.
| As per Companies Act, 2013 | As per Companies Act, 2013 | As per LODR, 2015 |
| (1) A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of—
(i) its free reserves; (ii) the securities premium account; or (iii) the capital redemption reserve account: Provided that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets. |
Eligibility: No company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares under sub-section (1), unless— (a) it is authorised by its articles;
(b) it has, on the recommendation of the Board, been authorised in the general meeting of the company; (c) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it; (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; (e) the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up; (f) it complies with such conditions as may be prescribed The Company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same. · The bonus shares shall not be issued in lieu of dividend |
LISTED ENTITY WHICH HAS LISTED ITS SPECIFIED SECURITIES
Record Date or Date of closure of transfer books: Record Date is a date fixed to identify the names of the shareholders who are eligible for Bonus Shares. (1)The listed entity shall intimate the record date to all the stock exchange(s) where it is listed for the issue of right or bonus shares; (2)The listed entity shall give notice in advance of at least seven working days (excluding the date of intimation and the record date) to stock exchange(s) of record date specifying the purpose of the record date; (3)The listed entity shall ensure the time gap of at least thirty days between two record dates. |
Effect of Bonus shares on Shareholders:
(i) No. of shares get increased without paying any further amount and therefore the amount of the total shares still remain the same;
(ii) A shareholder does not have to pay tax on the bonus shares which they have to pay on the dividend so received in cash.
(iii) Ownership of the Shareholders doesn’t get affected in the Company. For example: the total no. shares of a company is 1000000 and Mr. A holds 10000 shares of the company, so the ownership is 10000/1000000*100 = 1%. Now the company issues 1:1 bonus shares. Now the total no. of shares of the company is 2000000 and Mr. A holds 20000 shares then the ownership would be 20000/2000000*100=1%
(iv) Shareholders can sell the shares at a higher price.
(v) If the rate of dividend fluctuates, i.e., cannot be maintained, the market value of shares may go down.
(vi) If the rate of profit is not increased, the rate of dividend may be decreased.
(vii) It encourages speculation which might not be desirable.
(viii) Since total numbers of shares are increased as a result of bonus issue, dividend per share may be less.
(ix) Ex-date leads to the half the price of the shares, which helps the investors to buy who could not buy it at the high price;
Reasons of Bonus shares by Company:
(i) Gains the confidence of the shareholders by boosting the morale of the shareholders;
(ii) No. of shares get increased which leads to the enhancement of trading and active participation of the shareholders;
(iii) Since the number of shares are increased amount of dividend also get increased;
(iv) Since, company cannot pay dividend due to inadequacy of profit or loss therefore it prefers to issue Bonus shares;
(v) When the Company does not prefer to pay dividend in cash for the purpose of either its expansion or its working capital or any other specific purpose, such as any particular programme of diversification or modernisation;
(vi) Over-capitalisation may appear due to the issues.
EXTRACTS OF THE MINUTES OF THE 9TH MEETING OF THE BOARD OF DIRECTORS OF M/S ABC LTD HELD AT THE REGISTERED OFFICE OF THE COMPANY ON THE 1ST DAY OF OCTOBER, 2019, TUESDAY AT 4:00 P.M.
“RESOLVED THAT pursuant to the provisions of section 63 read with Rule 14 of the Shares Capital and Debentures Rules (including any statutory modification or re-enactment thereof) of the Companies act, 2013, subject to the approval of the articles of association, regulations of Securities and Exchange Board of India LODR, 2015, the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (as amended from time to time), shareholders in the ensuing general meeting and other applicable provisions, if any, the board of directors of the company recommend to issue the bonus shares in the ratio 1:1 (one bonus equity share of rs. 12/- each at a premium of rs. 5/- each for every one share of rs. 7/-)to the existing equity shareholders whose name appears on the Register of members as on the record date i.e. 30/11/2019 by capitalising the profit with rs. 2100000/- from the General Reserve by increasing the issued, subscribed and paid up share capital of the company from rs. 1,79,00,000 to rs. 2,00,00,000/- subject to the limit of the Authorised share capital rs. 3,00,00,000/-.”
“FURTHER RESOLVED THAT the Bonus share so allotted shall rank pari passu in all respects with fully paid up Equity shares of the company as existing on the record date.”
“FURTHER RESOLVED THAT for the purpose of giving effect to the aforementioned resolution Mr. A, director (DIN:…..) of the Company be and is hereby authorized to do all such acts, deeds, matters and things and to give such directions as may be necessary, to call the Extra Ordinary General Meeting of the shareholders, submit the required documents with the Stock Exchange and to file, execute, sign the necessary e-form with the Registrar of Companies, West Bengal.”
EXTRACTS OF THE MINUTES OF THE EXTRA ORDINARY GENERAL MEETINGS OF M/S ABC LTD HELD AT THE REGISTERED OFFICE OF THE COMPANY ON THE 8TH DAY OF NOVEMBER, 2019, FRIDAY AT 4:00 P.M.
“RESOLVED THAT pursuant to the provisions of Section 63 read with Rule 14 of the Shares Capital and Debentures Rules (including any statutory modification or re-enactment thereof) of the Companies act, 2013, applicable regulations of the articles of association, regulations of Securities and Exchange Board of India LODR, 2015, the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (as amended from time to time), and other applicable Regulatory Authorities, and such permissions, sanctions and approvals as may be required in this regard, other applicable provisions, if any, consent of the shareholders be and is hereby accorded to the Board of Directors of the company to issue the bonus equity shares in the ratio of 1:1 (one bonus equity share of rs. 12/ each at a premium of rs.5/- per share for every one share of rs. 7/-) to the existing equity shareholders whose name appears as on the record date i.e. 30/11/2019 thereby increasing the issued, subscribed and paid up share capital of the company from rs. 1,79,00,000 to rs. 2,00,00,000/- not exceeding the limit of the Authorised share capital rs. 3,00,00,000/- by capitalising the profit with Rs. 21,00,000/- from the General Reserve.”
“FURTHER RESOLVED THAT the issue of bonus equity shares shall be as per the terms and conditions of the Articles of Association of the Company and the applicable regulations of the SEBI, LODR, 2015.”
“RESOLVED FURTHER THAT the issue and allotment of the Bonus Shares to Non-Resident Members, Foreign Institutional Investors (FlIs) & other foreign investors, be subject to the approval of the Reserve Bank of India, as may be necessary.”
“FURTHER RESOLVED THAT the Company has neither defaulted in the payment of interest or principal in respect of fixed deposits or debt securities issued by it nor in respect of payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus.”
“FURTHER RESOLVED THAT the bonus shares shall not be issued in lieu of dividend.”
“FURTHER RESOLVED THAT Mr. A, director (Din:…………)of the Company be and is hereby authorized to sign, execute and to do all such acts, deeds and matters, as may be necessary to give effect to the above mentioned resolution and to file all the necessary e-forms with the Registrar of Companies, West Bengal.”
EXPLANATORY STATEMENT:
Since the Company has excess General Reserve and wants to increase the issued, subscribed and paid up share capital of the Company from rs. 1,79,00,000 to rs. 2,00,00,000/- subject to the limit of the Authorised share capital rs. 3,00,00,000/-, the Board of Directors of the Company in its meeting held on _________, at the registered office of the Company has recommended the issue of bonus equity shares to the existing shareholders as on the record date i.e. 30/11/2019 of equity shares of the Company in the ratio of ratio 1:1 (one bonus equity share of rs. 12/- each at a premium of rs. 5/- each for every one share of rs. 7/- each held) by capitalising the profit with rs. 2100000/- from the General Reserve as per the Audited Accounts of the Company for the financial year ended ____________,
The issue of bonus equity shares shall be as per the terms and conditions of the Articles of Association of the Company and the applicable regulations of the SEBI, LODR, 2015.
The Company has neither defaulted in the payment of interest or principal in respect of fixed deposits or debt securities issued by it nor in respect of payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus.
The Directors, the Chief Financial Officer and Company Secretary, being the Key Managerial Personnel of the Company and their relatives are deemed to be concerned or interested in the resolution only to the extent of shares held, if any, by them in the Company.
The Board of Directors of your Company recommends this Resolution for your approval.
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