Summary: The procedure for issuing bonus shares is governed by Section 63 of the Companies Act, 2013, and Rule 14 of the Companies (Share Capital and Debenture) Rules, 2014. Companies can issue bonus shares using free reserves, securities premium, or capital redemption reserves, but not from reserves created by asset revaluation. Conditions include authorization by the company’s articles and board, no defaults on financial obligations, and ensuring partly paid-up shares are made fully paid-up. The process involves several steps: sending a notice for the board meeting, passing a resolution, notifying the stock exchange, calling a general meeting, passing a resolution there, and filing necessary documents with the Registrar of Companies. Additional requirements include appointing a registrar, complying with depository requirements, and finalizing the allotment and trading of shares. The bonus issue must be implemented within six months of the board resolution, and the process must comply with various legal and regulatory conditions to ensure proper issuance and documentation.
The applicable provisions defined under sections 63 of companies act, 2013 read with the Rule 14 of the Companies (Share Capital and Debenture) Rule, 2014 applying in the case of the issue of Bonus shares.
The provisions defined under Section 63 of the companies act 2013 about the methods and conditions applicable on the companies and also affect the process of bonus shares. It starts with the following ways of source of funds uses for issuing the bonus shares among the shareholders of the company.
The following sources of funds are:
1. Its free reserves,
2. Securities premium account,
3. from capital redemption reserve account.
Provided that no issue of bonus shares shall be made by capitalizing reserves created by the revaluation of assets.
Also there are following conditions need to meet before a company capitalize its profit and reserves and issuing bonus shares. The following conditions are as specified below:
1. It is authorized by its articles;
2. It has, on the recommendation of the Board, been authorized in the general meeting of the company
3. It has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;
4. The partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up
5. The company and its promoters are not defaulted in respect of payment of statutory dues of employees in respect of provident fund, gratuity etc.
6. Any such other conditions required to be satisfied for the following process.
There are such limitations or certain restriction on the specified matters that affect the process of the issue of bonus shares. So the company must checking the same when the bonus shares is in mind. These are:
1. The bonus issue shall be made out of free reserves built out of the genuine profits or share premium collected in cash only,
2. The reserves created for the revaluation of fixed asset are not included in the reserves used for capitalization,
3. The bonus shares are provided to the fully paid shares,
4. The declaration of bonus issue is not in the lieu of dividend,
5. if the subscribed and paid-up capital exceed the authorized share capital, a Resolution shall be passed by the company at its general body meeting for increasing the authorized Capital,
The bonus issue should implement within the period of six months from the passing of the resolution in Board meeting,
Any other aspect as required to be complied or amended.
PROCESS OF ISSUE OF BONUS SHARES:
1. Notice of Board Meeting: Sending of at-least 7 days prior notice to the directors and prior intimation to the stock exchange.
2. Passing the resolution in Board Meeting: Holding board meeting after confirming the quorum, recommending and fixing the price for the bonus issue with authorizing any director for complying with the requirements.
3. Intimation of outcome of the board meeting: Submit the outcome and matters discussed in the board meeting with the stock exchange.
4. Notice of general meeting: The notice of conducting of general meeting approved in the board meeting, shall sent to the members and shareholders of the company.
5. Passing resolution in the general meeting: After the conduct of general meeting and passing the resolution for the issue of bonus shares, the proceeding need to intimate to stock exchanges, declaration of result of e-voting and intimate the record date fix for the bonus shares.
6. Fixing of Record date and filing MGT-14 for resolution of general meeting: The proceeding of the general meeting and other information with documents attached, submit form MGT-14 with ROC in the specified time period.
7. Complying with the Depository requirements: Appointment of Registrar to an issue for complying with the issue process and allotment cum unblocking of amount to the eligible shareholders.
8. Conduct board meeting for the allotment of shares: Notice of Board Meeting and Agenda circulated to Board Members for Allotment of Bonus Shares
9. Post allotment trading and other aspects: After allotment, file Form PAS-3 and in principal approval from the exchanges regarding the listing of bonus shares and credit the specified shares in the demat accounts of the eligible shareholders.
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