All About Issue of Bonus Shares (With Process)

BONUS SHARES:

Bonus shares are the additional shares that a company gives to its existing shareholders as “BONUS” on the basis of shares owned by them. Bonus shares are issued to the shareholders without any additional cost.

Only a company has the right to issue bonus shares to their shareholders, which has earned massive profit or large free reserves that cannot be utilized for any particular purpose and can be distributed as dividends. However, these bonus shares are given to the shareholders according to their existing stake in the company.

For example:

The bonus shares are given to the existing shareholders according to their existing stake in the company. Like for example, a company declaring one for two bonus shares would mean that an existing shareholder would get one bonus share of the company for every two shares held. Suppose a shareholder holds 1,000 shares of the company as on record date. Now when the company issues bonus shares, he will receive 500 bonus shares (1,000 *1/2 = 500).

WHAT IS EX-DATE?

The ex-date is one day before the record date. Here an investor has to buy the shares at least one day before the ex-date to become eligible for the bonus shares.

WHAT IS THE RECORD DATE?

The record date is the cut-off date decided by the company to be eligible for bonus shares. All shareholders who have shares in their Demat account on the record date will be eligible to receive bonus shares from the company.

WHO IS ELIGIBLE FOR BONUS SHARES?

Shareholders who own the company’s shares before the ex-date and on record date are eligible to receive bonus shares from the company.

In India, the T+2 rolling system is set for the delivery of the shares, Shareholders must purchase shares before the ex-date because if they purchase on the ex-date, the company will not give the ownership of shares, and therefore, they will not be eligible to receive bonus shares. Shareholders have shares in their Demat account on the record date will be eligible for the Bonus Shares.

Once a new ISIN (International Securities Identification Number) is allotted for the bonus shares. The bonus shares will be credited to the shareholder’s account within 15 days of time.

RELATED SECTION AND PROVSIONS:

Applicable Section: Section 63 for Issue of Bonus Shares

Applicable Rules: Rule 14 of Companies (Share Capital and Debentures) Rules, 2014

Regulatory Approval/Rules: Chapter Xv Related to Guidelines for Bonus Issues, in case of listed company

SECTION 63. ISSUE OF BONUS SHARES

(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.

(2) 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.

(3) The bonus shares shall not be issued in lieu of dividend.

GUIDELINES FOR BONUS ISSUES IN CASE OF LISTED COMPANIES

1. A listed company proposing to issue bonus shares shall comply with the following:

(a) No company shall, pending conversion of FCDs/PCDs, issue any shares by way of bonus unless similar benefit is extended to the holders of such FCDs/PCDs, through reservation of shares in proportion to such convertible part of FCDs or PCDs.

(b)The shares so reserved may be issued at the time of conversion(s) of such debentures on the same terms on which the bonus issues were made.

2. The bonus issue shall be made out of free reserves built out of the genuine profits or share premium collected in cash only.

3. Reserves created by revaluation of fixed assets are not capitalised.

4. The declaration of bonus issue, in lieu of dividend, is not made.

5. The bonus issue is not made unless the partly-paid shares, if any existing, are made fully paid-up.

6. The Company –

(a) has not defaulted in payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on redemption thereof and

(b) has sufficient reason to believe that it has not defaulted in respect of the payment of statutory dues of the employees such as contribution to provident fund, gratuity, bonus etc.

7. A company which announces its bonus issue after the approval of the Board of Directors must implement the proposal within a period of six months from the date of such approval and shall not have the option of changing the decision.

(i) The Articles of Association of the company shall contain a provision for capitalization of reserves, etc.

(ii) If there is no such provision in the Articles the company shall pass a Resolution at its general body meeting making provisions in the Articles of Associations for capitalization.

8. Consequent to the issue of Bonus shares if the subscribed and paid-up capital exceed the authorised share capital, a Resolution shall be passed by the company at its general body meeting for increasing the authorised Capital.

PROCESS OF ISSUE OF BONUS SHARES:

1. NOTICE OF BM:

√ 7 days before Notice of Board Meeting to Directors with Agenda and Notes to Agenda

√ Pre Intimation to BSE for holding of Board Meeting for  Issuance of Bonus   (Same day Intimation)

2. HOLD THE BOARD MEETING AND GET THE FOLLOWING PROPOSAL TO BE APPROVED BY THE BOARD:

• To recommend the Bonus Issue;
• To Fix Ratio and quantum of Bonus Issue;
• To approve the Notice of General Meeting;
• To decide the date, Time and Venue General Meeting;
• To authorize any director or Company Secretary for issue of Notice of General Meeting and do all necessary acts for issuance of Bonus Shares.
• Pass Board Resolution (Subject to approval of Members) for Issue of Bonus Shares and Alteration in MOA/AOA, if so required.

3. OUT COME OF BOARD MEETING UPLOAD ON BSE

Mentioning that the date on which such Bonus Shares shall be credited/dispatched will be informed to the Stock Exchanges in due course.

4. AFTER COMPLETION OF BM:-

√ Upload Corporate Announcement under Action to BSE as: Board recommends Bonus Issue 

√ NOTICE OF GM

• • Notice of General Meeting for Capitalize Reserves of the Company and to issue Bonus Shares. (Ordinary Resolution under Special Business)
  • Fixes Record Date

Remote E Voting: Start 3 days before and end one day before of GM

Cutoff date for voting rights of Members: maybe take one week before of EGM

5. HOLD AGM/EGM

6. AFTER COMPLETION OF EGM

√ Proceeding of EGM to BSE

√ Declaration of Results of Remote E-Voting and Voting Through Electronic Voting System during the EGM.

√ Disclosure of Voting results of EGM (Regulation 44(3) of SEBI (LODR) Regulations, 2015)

√ Upload Corporate Announcement under Corporate Action:-Intimation of fixes record Date for Bonus Shares

√ Record date should be after 10 days of GM (must have gap of more than 10 days)

√ File MGT-14 to MCA

7. PROCESS WITH DEPOSITORY

√ Consult with RTA for Timeline and Corporate Action with NSDL/CDSL

• • RTA will provide the timeline/checklist for the Corporate Action and Trading Approval

√ Docs Preparation for Corporate Action with NSDL/CDSL

√ Informed to BSE via Mail related to this matter and pre notice of bonus share

√ Few docs to be submit to Depository before 10 days of record date and fees to Depository.

8. BOARD MEETING

√ Notice of Board Meeting and Agenda circulated to Board Members for Allotment of Bonus Shares.

√ HOLD THE BOARD MEETING and Approve the Allotment of Bonus Shares and Fix the date of Dispatching/Crediting of Bonus Shares.

9. FURTHER PROCESS

√ FILE PAS-3

√ Take in principle Listing Approval of Bonus Shares from BSE and Intimate the pre and Post Shareholding Pattern to BSE after Allotment of Bonus to BSE

√ Received Copy of the letter / circular of the stock exchange confirming / notifying the record date

√ Apply to CDSL/NSDL after getting Trading/ Listing Approval of Bonus Shares from BSE

√ Corporate Action doc’s submission to Depository

√ After Completion of Corporate Action: Shares Credited (Time take Appox. 1 Week)

√ Trading of Bonus Shares

√ Stamp Duty Adjudication as per provisions & rates of Stamp Act of the relevant State.

Notes:

Provided that where the issuer is required to seek shareholders’ approval for capitalization of profits or reserves for making the bonus issue, the bonus issue shall be implemented within two months from the date of the meeting of its board of directors wherein the decision to announce the bonus issue was taken subject to shareholders’ approval.

Explanation: For the purpose of a bonus issue to be considered as ‘implemented’ the date of commencement of trading shall be considered.