GUIDELINES FOR

BONUS ISSUE

The project is presented by:

Tejal Darde Roll No. 6
Smita Gujar Roll No. 12
Aruna Gujarathi Roll No. 13
Kavita Jadhav Roll No. 16
Praneela Patil Roll No. 31

INTRODUCTION
An offer of free additional shares to existing
shareholders. A company may decide to distribute
further shares as an alternative to increasing the
dividend payout. Also known as a "scrip issue" or
"capitalization issue”. New shares are issued to
shareholders in proportion to their holdings. For
example, the company may give one bonus share
for every five shares held.
The term bonus means an extra dividend paid
to shareholders in a joint stock company from
surplus profits. When a company has accumulated
a large fund out of profits - much beyond its needs,
the directors may decide to distribute a part of it
amongst the shareholders in the form of bonus.
Bonus can be paid either in cash or in the form of
shares. Cash bonus is paid by the company when it
has large accumulated profits as well as cash to
pay dividend. Many a time, a company is not in a
position to pay bonus in cash in spite of sufficient
profits because of unsatisfactory cash position or
because of its adverse effects on the working
capital of the company. In such a position, the
company pays a bonus to its shareholders in the
form of shares; a free share thus issued is known
as a bonus share.
A bonus share is a free share of stock given to
current 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, it
does not increase the value of the company.
Although the total number of issued shares
increases, the ratio of number of shares held by
each shareholder remains constant. An issue of
bonus shares is referred to as a bonus issue.
Depending upon the constitutional documents
of the company, only certain classes of shares may
be entitled to bonus issues, or may be entitled to
bonus issues in preference to other classes. A issue
of bonus shares to the present shareholders of the
company. The amount of bonus shares received by
the shareholders is in direct proportion to their
existing shareholding in the company.
For example, a one-for-five bonus will enable a
shareholder to receive one bonus share for every
five ordinary shares presently he/she is holding.
The issue of bonus shares is effected through
the capitalization of the reserve funds or retained
earnings of the company. A company may decide
to have bonus issues when there are sizeable
accumulations in retained earnings or when a
revaluation of assets creates a sizeable increase in
the company's reserve funds. Hence, by issuing the
bonus, the company capitalises retained earnings
or reserves into shareholders' capital. Although the
issuance of bonus increases the paid up capital of
the company, it does not represent an increase in
shareholders' funds as it is only a transfer of funds
from reserves to the share capital account. This
type of issues are frequently used as a mean of
attracting investors to buy the shares of a
company.

ISSUE OF BONUS SHARES: A

LUCRATIVE PREPOSITION
 A bonus share is a free share of stock given to
current 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, it
does not increase the value of the company.
Although the total number of issued shares
increases, the ratio of number of shares held by
each shareholder remains constant. An issue of
bonus shares is referred to as a bonus issue.
Depending upon the constitutional documents of
the company, only certain classes of shares may
be entitled to bonus issues, or may be entitled to
bonus issues in preference to other classes.
A bonus issue (or scrip issue) is a stock split in
which a company issues new shares without
charge in order to bring its issued capital in line
with its employed capital (the increased capital
available to the company after profits). This usually
happens after a company has made profits, thus
increasing its employed capital. Therefore, a bonus
issue can be seen as an alternative to dividends.
No new funds are raised with a bonus issue.
Unlike a rights issue, a bonus issue does not
risk diluting your investment. Although the
earnings per share of the stock will drop in
proportion to the new issue, this is compensated by
the fact that you will own more shares. Therefore
the value of your investment should remain the
same although the price will adjust accordingly.
The whole idea behind the issue of Bonus shares is
to bring the Nominal Share Capital into line with
the true excess of assets over liabilities.

ISSUE OF BONUS SHARES

Bonus shares are issued by converting the
reserves of the company into share capital. It is
nothing but capitalization of the reserves of the
company. There are some conditions which need to
be satisfied before issuing Bonus shares:

1) Bonus shares can be issued by a company only

if the Articles of Association of the company
authorizes a bonus issue. Where there is no
provision in this regard in the articles, they must be
amended by passing special resolution act at the
general meeting of the company.

2) It must be sanctioned by shareholders in general

meeting on recommendations of BOD of company.

3) Guidelines issue by SEBI must be complied with.

Care must be taken that issue of bonus shares
does not lead to total share capital in excess of the
authorized share capital. Otherwise, the authorized
capital must be increased by amending the capital
clause of the Memorandum of association. If the
company has availed of any loan from the financial
institutions, prior permission is to be obtained from
the institutions for issue of bonus shares. If the
company is listed on the stock exchange, the stock
exchange must be informed of the decision of the
board to issue bonus shares immediately after the
board meeting. Where the bonus shares are to be
issued to the non-resident members, prior consent
of the Reserve Bank should be obtained.
Only fully paid up bonus share can be issued.
Partly paid up bonus shares cannot be issued since
the shareholders become liable to pay the uncalled
amount on those shares.
It is important to note here that Issue of
bonus shares does not entail release of company’s
assets. When bonus shares are issued/credited as
fully paid up out of capitalized accumulated profits,
there is distribution of capitalized accumulated
profits but such distribution does not entail release
of assets of the company.

ISSUE OF BONUS SHARES BY

PUBLIC SECTOR UNDERTAKINGS
It has come to the notice of the Government
that a number of Central Government Public Sector
Undertakings are carrying substantial reserves in
their balance sheets against a relatively small paid
up capital base. The question of the need for these
enterprises to capitalize a portion of their reserves
by issuing Bonus Shares to the existing
shareholders has been under consideration of the
Government. The issue of Bonus Shares helps in
bringing about at proper balance between paid up
capital and accumulated reserves, elicit good
public response to equity issues of the public
enterprises and helps in improving the market
image of the company. Therefore, the Government
has decided that the public enterprises, which are
carrying substantial reserves in comparison to their
paid up capital sold issue Bonus Shares to
capitalize the reserves for which the certain
norms/conditions and criteria may be followed and
fulfilled. There are some SEBI guidelines for Bonus
issue which are contained in Chapter XV of SEBI
(Disclosure & Investor Protection) Guidelines, 2000
which should be followed in deciding the correct
proportion of reserves to be capitalized by issuing
Bonus Shares.
Private sector banks, whether listed or
unlisted, can also issue bonus and rights shares
without prior approval from the Reserve Bank of
India. Liberalizing the norms for issue and pricing
of shares by private sector banks, the RBI said that
the bonus issue would be delinked from the rights
issue. However, central bank approval will be
required for Initial Public Offerings (IPOs) and
preferential shares. These measures are seen as
part of the RBI's attempt to confine itself to
banking sector regulation and leave the capital
market entirely to the SEBI. Under the guidelines,
private sector banks have also been given the
freedom to price their subsequent issues once their
shares are listed on the stock exchanges. The issue
price should be based on merchant bankers'
recommendation, the RBI has said. It means
though RBI approval is not required but pricing
should be as per SEBI guidelines. The RBI,
however, clarified that banks will have to meet
SEBI's requirements on issue of bonus shares. As
per current regulations, private sector banks whose
shares are not listed on the stock exchange are
required to obtain prior approval of the RBI for
issue of all types of shares such as public,
preferential, rights or special allotment to
employees and bonus. Banks whose shares are
listed on the stock exchanges need not seek prior
approval of the RBI for issue of shares except
bonus shares, which was to be linked with rights or
public issues by all private sector banks.

BONUS ISSUE & SEBI

GUIDELINES
The SEBI has issued guidelines for Bonus
issue which are contained in Chapter XV of SEBI
(Disclosure & Investor Protection) Guidelines, 2000.
A company issuing Bonus Shares should ensure
that the issue is in conformity with the guidelines
for bonus issue laid down by SEBI (Disclosure &
Investor Protection) Guidelines, 2000. It is a
detailed guideline which talks about that the bonus
issue has to be made out of free reserves; the
reserves by revaluation should not be capitalized.
Bonus issue should not be made in lieu of dividend.
There should be no default in respect to fixed
deposits. Bonus issue should be made within 6
month from date of approval. This is not exhaustive
but a lot of things are more in the guidelines
regarding this.
Siemens Bonus issue has been recommended
by the Board in their meeting held yesterday and
the ratio of the Bonus shares is 1:1 (One Bonus
share for every share held by the share holders).
Stock price of Siemens flared up 14% today on the
Bonus issue news and the stock hit an intraday
high of Rs. 2285 and is currently trading at Rs.1988
up 3.19 per cent from its previous close of
Rs.1926.50 on the NSE. Bonus issue news was
announced after the board meeting yesterday,
where Financial Results of the company were also
announced. Siemens Board has also declared a
dividend of Rs.4.80 on each share for the share
holders of the company."
 SEBI (DISCLOSURE AND
INVESTOR PROTECTION)
GUIDELINES, 2000
One of the primary role of Securities And
Exchange Board of India (SEBI) is to protect the
interest of investors. Towards this end, SEBI issues
guidelines for disclosure & investor protection-i.e.
the companies are required to disclose certain
information so that investors can make informed
decision. In absence of the disclosure norms, the
unscrupulous companies may take the investors for
granted by misrepresenting or concealing certain
important information.
SEBI framed its Disclosure and Investor
Protection Guidelines (DIP guidelines) in 1992.
Many amendments have been carried out in the
same to be in line with the market dynamics and
requirements. In 2000, SEBI issued “Securities and
Exchange Board of India (Disclosure and Investor
Protection) Guidelines, 2000” which is compilation
of all circulars organised in chapter form. These
guidelines and amendments thereon are issued by
SEBI under section 11 of the Securities and
Exchange Board of India Act, 1992. DIP guidelines
provide a comprehensive framework for issuances
by the companies.
Applicability of the (SEBI Guidelines):
SEBI Guidelines:
These Guidelines shall be applicable to:
• all public issues by listed and unlisted
companies,
• all offers for sale and right issues by listed
companies whose equity share capital is listed,
except in case of rights issues where the
aggregate value of securities offered does not
exceed Rs.50 lakhs.
In case of the rights issue where the aggregate
value of the securities offered is less than Rs.50
lakhs, the company shall prepare the letter of offer
in accordance with the disclosure requirements
specified in these guidelines and file the same with
the Board.
Unless otherwise stated, all provisions in these
guidelines applicable to public issues by unlisted
companies shall also apply to offers for sale to the
public by unlisted companies.
Way in which SEBI ensures compliance with
SEBI Guidelines:
The Merchant Banker are the specialized
intermediaries who are required to do due
diligence and ensure that all the requirements of
DIP are complied with while submitting the draft
offer document to SEBI.
Any non compliance on their part, attract penal
action from SEBI, in terms of SEBI (Merchant
Bankers) Regulations. The draft offer document
filed by Merchant Banker is also placed on the Web
site for public comments.
Officials of SEBI at various levels examine the
compliance of DIP guidelines and ensure that all
necessary material information is disclosed in the
draft offer documents.
 GUIDELINES FOR BONUS
ISSUE
A listed company proposing to issue bonus
shares shall comply with the following:
1.No company shall pending conversion of
FCDs/PCDs, issue any shares by bonus
unless similar benefit is extended to the
holders of such FCDs/PCDs, through
reservation of shares proportion to such
convertible part of FCDs/PCDs.
2.The shares so reserved may be issued at
the time of conversion of such debentures
on the same terms on which the bonus
issues are made.
3.The bonus issue shall be made out of free
reserves built out of the genuine profits or
share premium collected in cash only.
4.Reserves created by revaluation of fixed
assets are not capitalized.
5.The declaration of bonus issue, in lieu of
dividend, is not made.
6. The bonus issue is not made unless the
party-paid shares, if any existing, are made
fully paid-up.
7.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.

8.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.
9. The Articles of Association of the company
shall contain a provision for capitalisation
of reserves, etc.
10. 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
capitalisation.
11. Consequent to the issue of Bonus shares if
the subscribed and paid up capital exceeds
the authorized share capital, a Resolution
shall be passed by the company at its
general body meeting for increasing the
authorized Capital.
12. A certificate duly signed by the issuer
company and counter signed by statutory
auditor or by Company Secretary in
practice to the effect that the provision of
the above clauses have been comp with,
shall be forwarded to the SEBI.
 CONCLUSION
The economy is booming, the markets are
buoyant, and Indian companies are increasing their
profitability. Consequential of all this, many
companies have announced issues of bonus shares
to their shareholders by capitalizing their free
reserves this year. In this bullish market,
shareholders have benefited tremendously, even
after accounting the inevitable reduction in share
prices post-bonus, since the floating stock of
shares increases. The whole purpose is to
capitalize profits. We can say that Bonus shares go
by the modern name of “Capitalisation Share”.
Fully paid bonus shares are not a gift
distributed of capital under profit. No new funds
are raised. Earlier there was also a lot of confusion
& chaos between the two fiercely debated
concepts of taxation laws i.e. Capital & Revenue
Expenditure which was finally settled after the case
which come up in SC in 2006, named
Commissioner of Income Tax v. General Insurance
Corporation. Now it is also settled law that a bonus
issue in the form of fully paid share of the company
is not income for the Income Tax purpose. The
undistributed profit of the company is applied and
appropriated for the issue of bonus shares.

Questions
1. What are the qualifications required for setting up the
business of steel?
2. What is the cost for starting the steel industries?
3. About the location for starting the business? (details)
4. What is the plant layout? (details)
5. What is manufacturing process? (details)
6. What are the products can be produced and from whom we
can take the orders? (details)
7. How much is the machine required and what types of
machine and what is the cost of the machine?
8. How much is the manpower required and at the first how
many employees are appointed and how much is the salary
given to them?
9. What is the management of the company?
 10. What is the financial aspect of the project including cost of
project, fixed assets, working capital requirements and
source of finance? (details)
11.What will be the total income, operating profit and net
profit? (details)
12.What is the importance of project to national economy?
13.How much is the raw material required for starting the
business and from where we can get the raw material?
14. From where will get the power supply, water supply and
what will be the cost and how much quantity is required
monthly?
15. License for setting up the business from government?
(details)
16.What should be the suitable climatic condition?
17.What should be the industrial atmosphere?

Project Appraisal
Introduction:
Appraisal exercises are basically aimed at determining the
viability of the project and sometimes in reshaping the project so
as to upgrade its viability. While appraising a project factors that
are generally considered include technical financial, economic,
social, managerial and ecological. Location also has an
important bearing on the project cost and cost of production.
Project appraisal calls for a multi-dimensional analysis of the
project, i.e. a complete scanning of the project. Banks and
Financial Institutions make a critical appraisal of the projects
which are submitted to them by the entrepreneurs for getting
loans.
Meaning:
Project appraisal means the assessment of the project in terms of
its economic, social and financial viability. It is the analysis of
the costs and benefits of a proposed project with the aim of
assuring a rotational allocation of funds among the alternative
investment opportunities with a view of achieving certain
specified goals.
Project appraisal is a process of transmitting information
through feasibility studies into a comprehensive form in order to
enable the decision-maker undertake a comparative appraisal of
various projects and decide on a particular project or projects for
allocating the available scarce resources
Various Aspects of Project Appraisal:
(1) Economic Aspects.
(2) Organizational Aspects.
(3) Managerial Aspects.
(4) Technical Aspects.
(5) Financial Aspects.
(6) Market / Commercial Aspect

Project Report:
The project report is a summary of project planning. It is
prepared by experts after completing the project planning. It
serves as a base for feasibility studies and actual execution of
project. The report deals with the different aspects of the
proposed project are generally prepared by a team of experts
including engineers’ technicians and financial experts.
Project report contains details regarding technical, financial
marketing and managerial aspects of a project. The purpose of
report is to place all necessary data for consideration of exp
financial institutions such as IDBI, ICICI need comprehensive
project report because the lending institutions desires to study
the soundness proposed project before granting a loan
Contents of Project Report:
(1) Name, address and other details of the sponsoring agency.
(2) Brief history and summary of the propose project.
(3) Technical details of the project which include details of
project layout, location, manufacturing process, products, etc...
(4) Cost of production and profitability.
(5) Manpower requirement of the project.
(6)Financial aspects of the project, which include cost of project,
fixed assets, working capital requirement and sources of finance.
(7) Total income, operative profit and net profit.
(8) Importance regarding marketing.
(9) Importance of the project to national economy, export
promotion
(10) Salient features of the project which will have a bearing on
successful implementation with reference to land, building, p1
and machinery, raw material, availability of labour, etc.

Advantages of Project Report:

(1) Project report is useful for taking Bank loans and submitting
proposals for government license and permission.
(2) It is useful for quick reference during the process of
execution of project.
(3) It is useful as a controlling device.
(4) Project report is useful for modification or for improvement
in proposed project during the course of feasibility study or
appraisal of the project.
(5) It is a base for feasibility study.