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CS Akshay Goyal

CS Akshay Goyal1. Introduction

Bonus issue refers to a further issue of shares made by a company having share capital to its existing shareholders in proportion to their holdings without any consideration. It is also called as capitalization of the reserves of the Company.

For example, company X issues bonus shares in the ratio of 2:1. This means that for each share that an individual holds, the company shall provide two shares for free. If you have 100 shares on the date of record, you will get 200 shares for free; so, your total holding will now be 300. Bonus shares are not really bonuses i.e. they are not free but actually conversion of the company’s undistributed profits into capital through issue of additional shares, which were not distributed earlier and retained in the Company in the form of reserves. Bonus shares include both equity shares and preference shares.

Section 63 of the Companies Act, 2013 (‘the Act’) read with rule 14 of the Companies (Share Capital and Debentures) Rules, 2014 have laid the turf to regulate such issuance. The provisions are applicable to all classes of companies, listed or unlisted companies. Besides, Chapter IX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 (‘ICDR Regulations’) comprising of regulations 92 to 95 also regulate issuance of bonus shares in listed companies.


♣ From the point of view of Issuer/Company:-

  1. It enables the company to retain money required for its business undertaking.
  2. The share of the Company becomes more saleable, it leads to stability in price and increases volumes of shares traded in the market.
  3. It is taken as a sign of the good health of the company.
  4. The Company is prevented from paying Dividend distribution tax.
  5. It increases the liquidity of company’s shares in the stock market.

♣  From the point of view of Investors:-

  1. Increase in the value of investors wealth
  2. Earning more dividend
  3. Bonus shares are not taxable.
  4. Bonus shares can be sold in the market immediately after a shareholder gets it.



Ensure that:

  1. There is a provision in the articles permitting issue of bonus shares by capitalization of reserves etc.[1]
  2. The present authorized capital has adequate un-issued equity capital to accommodate the proposed issue of bonus shares.
  3. Bonus issue is authorized by the members of the Company by SPECIAL RESOLUTION, because even if members deny to pass resolution for bonus issue than board of directors had to complete the formalities related to the Bonus issue.[2]
  4. No partly paid up shares are lying before making fully paid up bonus share issue. If there are any partly paid up equity shares, they should be made fully paid up equity shares.[3]
  5. There is no default in the payment of interest or principal in respect of fixed deposits or debt securities issued by the Company.[4]
  6. There is no default in respect of payment of statutory dues of the employees.[5]
  7. TheCompany has sufficient free reserves built out of genuine profits or share premium collected in cash only or capital redemption reserve created at the time of redemption of preference shares and not from the capitalized reserves created from revaluation of fixed assets.[6]
  8. Permission of Reserve Bank of India is obtained for allotting the shares to Nonresident shareholders, if such allotment does not fall into automatic route.[7]
  9. The Company had made reservation of equity shares of the same class in favor of the holders of such outstanding convertible debt instruments in proportion to the convertible part there-of.[8]
  10. Bonus shares are not issued in lieu of dividend.[9]
  11. The rate of dividend to be declared after bonus share is mentioned in the resolution.
  12. Where approval of shareholders is not required, the bonus issue should be implemented with 15 days from the date of board meeting announcing bonus issue.[10]
  13. The whole of the shareholding of the Company is in the demat form, as the listed company is allowed to issue shares in demat form only.
  14. The decision of the Bonus issue cannot be withdrawn at the later stage.[11]
  15. Bonus shares are not issued in a manner that may confer on any person superior rights as to voting or dividend vis-a-vis the rights on equity shares that are already listed.[12]
  16. Where any instrument of transfer of shares has been delivered to any company for registration and the transfer of such shares has not been registered by the company till the book closure date, the Company should keep in abeyance the offer of fully paid-up bonus shares.[13]


STEP –I –Call the Board Meeting by issuing notice of at least 7 days for calling meeting of Board of Directors.

STEP –II –Inform the Stock Exchange at least 2 working days prior to the date of Board meeting of the proposal to consider the bonus issue.[14]

STEP –III –Hold the Board Meeting and pass Board Resolution for issue of shares and increase in authorised Share Capital (if any). Also, decide the Ratio of Shares offering to shareholders.

Subsequently, Fixing the date, time, and venue of the general meeting for the approval of the said issue by the members of the Company and authorizing a director or any other person to send the notice for the same to the members.

STEP –IV –Inform the stock exchange with 30 minutes of the conclusion of the meeting the decision to declare bonus.[15]

STEP –V –Issue notice of general meeting pursuant to the provisions of the Section 101 of the Companies Act 2013 which provides for issue of notice of EGM in writing to below mentions at least 21 days before the actual date of the EGM:

  • All the Directors.
  • Members
  • Auditors of Company

The notice shall specify the place, date, day and time of the meeting and contain a statement on the business to be transacted at the EGM. The notice to EGM shall also contain the amended copy of the MOA.

STEP –VI- Filling of e-form MGT-14:

File e-form- MGT-14 within 30 days of Passing of Board Resolution for issue of shares (securities) with the approved board resolution for issue of shares.

STEP –VII –Convene a general meeting and pass ordinary/special resolution for issue of bonus shares. Please note that company is not required to mandatorily conduct general meeting, passing of resolution for issue of bonus shares can be done through postal ballot.

STEP –VIIA- Filing of E-form SH-7 and MGT-14 after passing of ordinary resolution in the general meeting. The stamp duty is required to be paid for increase in such authorized share capital at the time of filling e-form SH-7.[16]

STEP –VIII – Publish a notice of record date for the purpose of determining the eligibility of members for bonus shares.

STEP –IX –Give notice to the stock exchange in advance of at least 7 working days informing it about the closure of share transfer books and the recording date.[17]

STEP–X –Call and hold the Board Meeting for allotment of shares:

STEP–XI –Filling of e-Form PAS-3;

File e-form PAS-3 within 30 days of passing of Board Resolution for allotment of shares along with following attachments:

  • Ordinary Resolution for issue of bonus shares.
  • Board Resolution for allotment of shares.
  • List of allottees mentioning name, address, occupation if any and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the form pas-3.

STEP–XII –If shares are issued in physical form, the Company will issue share certificate to the shareholders with in 2 month from the date of allotment of shares.

STEP -XIII-Apply to the Stock Exchange for obtaining in principle approval for listing bonus shares together with provisional documents relating thereto. [18]

P.S:- Please note that any disclosures and compliance mentioned in the above article with regards to stock exchange are applicable only for listed Company.

Stamp Duty on issue of Bonus Shares:-

The stamp duty is to be paid on the share certificate irrespective of the fact whether it is a bonus issue/ rights issue /public issue. There is no difference on stamp duty on shares of a listed company or shares of an unlisted company. Rate of stamp duty defers from state to state. Stamp duty is calculated on value of shares i.e. face value and security premium.

Tax treatment in the hands of the shareholders:-

There is no tax implication when bonus shares are awarded. But when they are sold, they may be taxable, depending on the time for which they are held. The tax man considers the value of these bonus shares nil. The originally acquired shares will continue to be valued at the price paid at the time of acquisition.

However, Indian companies paying such dividends have to pay a dividend distribution tax (DDT) 15% plus surcharge and education cess. Further, dividend and DDT are not tax deductible in the company’s hands leading to double taxation of earnings.

Impact of bonus issue on Company:-

  1. Share capital gets increased according to the bonus issue ratio.
  2. It increases liquidity of the stock in capital market.
  3. Effective Earnings per share, Book Value and other per share values stand reduced.
  4. This also perks up market image of the company and markets take the action usually as a favorable act.
  5. Accumulated profits get reduced.
  6. A bonus issue is taken as a sign of the good health of the company.

Terminologies related to bonus issue:-

1. Record date

The record date is the date on which the bonus takes effect, and shareholders on that date are entitled to the bonus.

2. Ex-bonus date

After the record date, when the bonus has been given effect, the shares become ex-bonus. Thereby, the holders of the shares become ineligible for bonus shares.

3. Cum-bonus date

After the announcement of the bonus but before the record date, the shares are referred to as cum-bonus.

Bonus issue different from a stock split:-

A bonus is a free additional share. A stock split is the same share split into two.

Usually companies accumulate it’s earnings in reserve funds instead of paying it to share-holders in form of dividend. This accumulated reserve fund is then converted into share-capital and allotted to share-holders as bonus shares in proportion to their existing holding. So, Share-capital of the company increases with a concomitant decrease in its Reserve profits. Share-holders get bonus shares in compensation of dividend.

But when a share is split, say, from Rs 10 denomination to Re 1 denomination, there would neither be an increase in the share capital nor a concomitant decrease in the reserves of the company. This is because while in a bonus issue a person having one share of Rs 10 face value would get another share of the same face value should the company go for a 1:1 bonus what would happen in a stock split is his one Rs 10 share would now be converted into ten Re 1 shares. Tax implication in the case of stock split in nil.

But both, stock split and bonus issue aims to achieve a common objective of providing additional liquidity into the shares by making them more affordable


Bonus share, a not so bonus yet a bonus for common shareholders. As above discussed that bonus shares are defacto part of free reserves which were not distributed to shareholder for the future growth of the Company. Reserves are distributed in form of either equity or preference shares in maintaining equilibrium between share capital and reserves in the balance sheet. Informally, Bonus issue is also made to increase the liquidity of shares in the capital market.

It is understood, in common parlance that the market price of share remains same after bonus issue, but the fact is that market price gets adjusted in the ratio of bonus shares issued in the market which thereby makes no difference in the wealth of shareholders in short term. However in long term, with the strong fundamentals of the Company, the share price of the Company moves up and it increase the wealth of the shareholders.

From the regulatory point of view, regulators are seemingly trying hard to make the procedure and compliances to be less cumbersome and simple to follow. In view of this regulators have kept various checks and balances at appropriate places to ensure that issuers or any person don’t misuses the provisions for their own personal gain and in meantime making procedure unambiguous and simple to follow.Regulators have given a sigh of relief by not making any amendments in Companies (Amendment) Bill, 2016 with respect to issue of bonus share.


[1]Regulation 92(a) of the SEBI (ICDR) Regulations, 2009 and Section 63(2) of the 2013 Act.

[2]Section 62(c) of the 2013 Act.

[3]Regulation 92(d) of the SEBI (ICDR) Regulations, 2009 and Section 63(2) of the 2013 Act.

[4]Regulation 92(b) of the SEBI (ICDR) Regulations, 2009 and Section 63(2) of the 2013 Act.

[5]Regulation 92(c) of the SEBI (ICDR) Regulations, 2009 and Section 63(2) of the 2013 Act.

[6]Regulation 94(1) of the SEBI (ICDR) Regulations, 2009 and Section 63(1) of the 2013 Act.

[7]Regulation 6A of FEM (Transfer or issue of security by a PROI) Regulations, 2000.

[8]Regulation 93(1) of the SEBI (ICDR) Regulations, 2009.

[9]Section 63 of the 2013 Act.

[10]Regulation 95(1) of the SEBI (ICDR) Regulations, 2009.

[11]Regulation 95(2) of the SEBI (ICDR) Regulations, 2009 and Rule 14 of the Companies (Share Capital and debentures) Rules, 2014.

[12]Regulation 41(3) of SEBI (LODR) Regulations, 2015.

[13]Section 126 of the 2013 Act.

[14]Regulation 29(f) of SEBI (LODR) Regulations, 2015.

[15]Regulation 30(6) of SEBI (LODR) Regulations, 2015.

[16]Section 64 of the 2013 Act.

[17]Regulation 42(2) of SEBI (LODR) Regulations, 2015.

[18]Regulation 28(1) of SEBI (LODR) Regulations, 2015. Also, documents required in obtaining in principle approval are provided in Annexure – I.


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  1. prem says:

    I purchased 500 shares on 24/9/20 and contract note issued by DP as 24/9/20 trade date with traded value etc. The company declared bonus shares with record date as 26/9/20, shares credited in my demat a/c on 28/9/20. Am I the shareholder of the company on record date and eligible to get bonus shares as per rules?

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April 2024