Bonus Shares are the non-cash benefits granted to the Shareholders of the Company without any additional cost, based on the number of shares that a shareholder owns. Generally, the Company’s accumulated earnings which are not utilised by the Company to pay dividend are used to issue Bonus Shares.
The Rationale behind the Issue of bonus Shares is to encourage the retail participation and increase their equity base. When price per share of a company is high, it becomes difficult for new investors to buy shares of that particular company. Increase in the number of shares reduces the price per share.
But while issuing the bonus shares, Company needs to comply with various provisions of the Companies Act, 2013, SEBI (ICDR) Regulations, 2018, SEBI (LODR) Regulations, 2015 and various SEBI circulars.
To understand the same w.r.t Listed Company the following procedure needs to be adopted:
Preliminary Check
1. Check whether it is authorized in the AoA of the Company for capitalization of reserves, if it is not the case then the Company shall have to amend its AoA.
2. Check the MoA and AoA of the Company for authorized share capital, if it is not sufficient then the Company has to increase the same and amend its MoA and AoA (if applicable).
3. Check the eligibility criteria for the Company as defined under Section 63(2) of the Companies Act, 2013 and Regulation 293 and 294 of the SEBI (ICDR) Regulations, 2018.
4. The Company shall have to take the Statutory Auditors Certificate stating the amount of free reserves available for issuing bonus shares as at the end of previous quarter.
5. On the basis of availability of reserves decide the ratio of Bonus Shares (e.g., if ratio is 4:1 then it means Company will offer 4 new bonus shares for every 1 existing share).
Conducting of Board Meeting
6. For the Board Meeting in which proposal to issue bonus shares is going to be discussed the Company shall give at least 2 working days advance notice to the Stock Exchange, excluding the date of the intimation and date of the meeting.
7. Hold the Board Meeting and take the following approvals from the Board:
- Issue of Bonus Shares;
- Increase in authorized share capital, if required;
- Approve the Notice of general Meeting;
- Decide Cut-off date, Book closure period, e-voting period;
- Appoint NSDL/ RTA for providing the e-voting facility to the members;
- Appoint Scrutinizer for scrutinizing the voting results of General Meeting.
8. The Company shall submit the Outcome of Board Meeting along with additional disclosure as required under SEBI circular no. CIR/CFD/CMD/4/2015 dated September 09, 2015 within 30 minutes of the conclusion of the Board Meeting.
9. Submit the Notice of General Meeting to the Stock Exchange within 24 hours of the conclusion of Board Meeting and upload the same on the website of the Company.
10. Submit the necessary documents to the RTA for generation of E-Voting Serial No. (EVSN).
11. Send the Notice of General Meeting to the Shareholders, Directors and Auditors through physical dispatch whose e-mail is not registered with the Company and through e-mail whose e-mail is registered.
12. The Notice of General Meeting shall be published in at least one English language national daily newspaper and in one daily newspaper published in the language of the region, where the registered office of the Company is situated. Simultaneously submit the same to the Stock Exchange.
13. Submit the Intimation of Book Closure period at least 7 working days in advance.
In-Principle Approval
14. If Bonus Issue is required to seek shareholders’ approval, then it is advisable that the Company should apply for the In-Principle approval before convening its general meeting, in which the Company is required to submit the following documents along with the non-refundable processing fees:
- CTC of Board Meeting approving Bonus Issue;
- Notice of General Meeting sent to the shareholders for proposed Bonus Issue;
- Written Confirmation from Managing Director/ Company Secretary of the Company that Company fulfills the eligibility criteria for issuing Bonus shares as discussed above;
- Statement of Bonus Entitlement;
- Latest Annual Report;
- CTC of General Meeting approving Bonus Shares;
- CTC of general Meeting for Increase in Authorized Capital, if required;
- Amended MOA and AOA;
- Statutory Auditors certificate as mentioned above.
15. File e-form MGT-14 within 30 days of the Board Meeting.
Convening of General Meeting
16. Convene the General Meeting and take necessary approvals from the Shareholders of the Company.
17. Submit the Proceedings of General Meeting within 24 hours of conclusion of General Meeting.
18. Submit the Voting Results and Scrutinizer Report within 2 working days of General Meeting.
19. Decide the Record Date for issuance of Bonus Shares and intimate the same to the Stock Exchange, RTA and Depositories at least 7 working days in advance from the Record Date.
20. Submit the other necessary documents required by Stock Exchange for granting In-Principle approval.
21. Obtain the In-Principle Approval Letter before Record Date.
22. File e-form MGT-14 within 30 days of General Meeting.
23. After Record Date hold the Board Meeting and allot the Bonus Shares.
24. File e-form SH-7 for Increase in authorised share capital within 30 days of General Meeting.
Allotment of Bonus Shares
25. Submit the Intimation for allotment of Bonus Shares within 24 hours of the Conclusion of the Board Meeting.
26. Obtain Pre and Post allotment Shareholding Pattern from the RTA to verify.
Listing Approval
27. Apply for the Listing Approval from the Stock Exchange within 20 days of allotment and submit the following documents:
- Listing Application;
- CTC of Board Meeting for Allotment of Bonus Shares;
- Brief Particulars of the Bonus Issue;
- Pre and Post Shareholding Pattern;
- Certificate from Statutory Auditors/ PCA/ PCS confirming that the Company is in compliance with SEBI (ICDR) Regulations, 2018 for Bonus Issue;
- Written confirmation from the Managing Director/ Company Secretary as prescribed by exchange;
- Details of Bonus Shares which are under lock-in, if any.
28. File e-form PAS-3 within 30 days of allotment of Bonus Shares.
29.Submit the Shareholding Pattern of the Company to the Stock Exchange at least one day prior to the Listing of Shares.
30. Obtain Listing Approval from the Stock Exchange.
31. Submit the Corporate Action Application with both the Depositories i.e., NSDL and CDSL for Credit of Bonus Shares in the Demat Account of the Shareholders.
32. Provide necessary stationery to the RTA for printing of physical Share Certificates pursuant to Bonus Issue.
33. Obtain the Credit Letters of Bonus Shares from both the Depositories stating the credit of Bonus Shares in the Temporary ISIN.
34. Obtain RTA Confirmation for dispatch of Bonus Share Certificates to all the Shareholders whose shareholding in not in dematerialized form.
Trading Approval
35. Apply for the Trading Approval of Bonus Shares to the Stock Exchange within 7 working days of receipt of Listing Approval.
36. Obtain the Trading Approval from the Stock Exchange and send the same to the Depositories.
37. Depositories will credit the bonus shares in the demat account of shareholders and trading in the shares will start from the next date of receipt of Trading Approval.
Note:
1. If the trading in the bonus shares of the Company will not start within 2 months from the date of Board meeting in which Board approve the Bonus Issue, then the Company has to pay the penalty of Rs. 20,000 per day.
2. If Company doesn’t Comply with the point no. 27 and 35 then also Company has to pay the penalty of Rs. 20,000 per day.
3. After Issuing Bonus Shares the Company doesn’t have to pay the stamp duty because as per the new framework of Stamp Duty the stamp duty is to be collected on market value which comprises of only price or consideration involved in the transaction and in case of issuance of bonus shares, no consideration/ price is involved and thus, no stamp duty will be levied.
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