Definition of Bonus Share

A bonus share is a free share of stock given to current shareholders in the Company, based upon the current shareholding of shareholders.

Although the total numbers of issued shared increases, but the ratio of numbers of shares held by each shareholder remains constant.

Let’s understand this concept with an example:-

Shareholder A holds 1000 shares of a Company and Company declares bonus shares in the ratio of 3:1, his current will now be 4000 shares of a Company.

Ratio of 3:1 means for every 1 share hold by shareholder, he will get 3 additional bonus shares.

Legal Provisions related to Issue of Bonus Shares in Private Company

Procedure for Issue of Bonus Shares in Private Company

Step I: Check and ensure that Article of Association contains points regarding the issue of Bonus shares, if not than alter the Article of Association first.

Step II: Check and ensure that the Authorized share capital of the Company is sufficient for the issue of Bonus shares, if not than first increase Authorized share capital of the Company.

Step III: Check and ensure that the sources out of which the bonus is to be made is sufficient.

Step IV: Call and conduct Board meeting and pass resolution for:

a) For Recommending Issue of Bonus shares.

b) For deciding the ratio of shares offering to the shareholders.

c) For Fixing the Date of Extra Ordinary General Meeting for seeking the consent of the members for issue of bonus shares.

Step V: Call and conduct Extra-Ordinary General Meeting of shareholders for passing the resolution of issuing bonus shares.

Step VI: File MGT-14 with ROC within 30 days of passing resolution.

Step VII: Call and conduct Board meeting for allotment of shares.

Step VIII: File PAS-3 with ROC.

Step IX: Issue of Share certificates.

Step X: Making entry in the Register of members.

Source of Funds for Issue of Bonus shares

1. Bonus Shares can be issued from:-

(i) its free reserves

(ii) the securities premium account; or

(iii) the capital redemption reserve account.

2. No issue of bonus shares shall be made capitalizing reserves created by the revaluation of assets. (Company can’t issue Bonus Shares out of reserve create from revaluation of assets).

Author Bio

Qualification: CS
Company: Prateek Kapoor & Associates
Location: delhi, New Delhi, IN
Member Since: 15 Jun 2017 | Total Posts: 1

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May 2021