There are a lot of Companies who has surplus profits and intends to capitalize such profits by issue of bonus shares. Bonus shares are basically gift to the shareholders in the ratio of shares already owned by them. These are a free share of stock given to the existing shareholders in a Company, based upon the number of shares that the shareholder already owns. While the issue of bonus shares increases the total number of shares issued and owned by an investor, it has no liquidity effect on the Company as there is no cash involvement as such. 

REGULATORY PROVISIONS: Section 63 of the Companies Act, 2013 read with Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014.

Bonus Shares

FUNDS WHICH CAN BE USED FOR ISSUING BONUS SHARES: –

A company may issue fully paid-up bonus shares to its members, out of only

  • Its free reserves;
  • The securities premium account; or
  • The capital redemption reserve account.

The bonus shares are generally issued in a ratio i.e. for instance, if an investor holds 100 shares of a Company and a Company declares 2:1 bonus offer that would mean that the investor would get 2 shares for every 1 share held by him in such Company. Therefore, he will get 200 additional shares as per this example and his total shareholding in the Company would be increased to 300 shares. 

It is also pertinent to mention that bonus shares shall not be issue by capitalizing reserves created by the revaluation of assets. 

IMPORTANT GUIDELINES BEFORE ISSUE OF BONUS SHARES: –

  • The most important guideline is that such shares can be issued by a Company only if the Articles of Association of the Company authorizes the issue of bonus shares and if not, the Articles of Association shall be amended before passing special resolution for issue of bonus shares.
  • The Company after announcing such issue in its Board meeting cannot withdraw such issue.
  • The bonus shares shall not be issued in lieu of dividend.
  • The partly paid-up shares, if any outstanding on the date of allotment, shall be made fully paid-up before such issue.
  • The Company has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it.
  • The Company has not defaulted in respect of the payment of statutory dues of the employees, such as contribution to provident fund, gratuity and bonus.

PROCESS FOR ISSUE OF BONUS SHARES: –

Step 1: Sending notice and agenda items to the Directors to hold board meeting as per Secretarial Standard-1. 

Step 2: – Holding Board Meeting to decide and for sending notice for convening general meeting. 

  • Pass Board Resolution and decide ratio and quantum for such issue.
  • Issue notice for general meeting attaching explanatory statement thereto and in compliance to Secretarial Standards-2.

Step 3: Holding general meeting 

  • Passing Special Resolution approving the issue of bonus shares.
  • File eForm MGT-14 within 30 days of passing special resolution.

Step 4: Issue of bonus shares and pass board resolution for allotment of such shares.

Step 5: File eForm PAS-3 within 30 days of passing of resolution of allotment by the board. 

Step 6: The Company shall issue the share certificates to members to whom bonus shares has been issued within two months from the date of allotment.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q 1. Whether in case of bonus issue, preference shares can also be issued or it is that only equity shares need to be issued?

Ans. The Act states the word “shares” and not any particular category of shares is mentioned; accordingly, we can conclude that preference as well as equity shares both can be issued.

Q 2. Can we pass resolutions for altering articles for issue of bonus shares and issue bonus shares in the same extra ordinary general meeting or is it necessary to convene two extra ordinary general meeting to pass both resolutions separately.

Ans. The law is silent on this however, it is always recommended to mention in the resolution for issue of bonus that the same will be passed subject to approval of members the resolution for alteration of articles for issue of bonus shares.

{The author i.e. Kajal Goyal is a Company Secretary in Practice at Kajal Goyal and Associates and founder of Alliance Professionals and further, can be reached at (M) 9999952595 and (E) cskajalgoyal@gmail.com}

Author Bio

Qualification: CS
Company: Kajal Goyal and Associates
Location: Delhi, New Delhi, IN
Member Since: 11 Jun 2018 | Total Posts: 72
KAJAL GOYAL AND ASSOCIATES, is a Company Secretary proprietorship firm, offering its expertise and one stop solutions for all Corporate compliance requirements to the clients with a strong emphasis on ethics and ‘being on toes’. Capable delivering services related to Companies Act, FEMA, Re View Full Profile

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