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ISSUE OF BONUS

SHARES

B MONIKA RAO
2015PGP017

3 Conditions for Bonus Issue……………………………………………………………………………………………………… …….. etc.5 Consequences of issue of Bonus Shares……………………………………………………………….4 Compliance Check List…………………………………………………………………………………5 Pre Issue work for the Issue of Bonus Shares……………………………………………………….3 Bonus shares only against reserves. if capitalized in cash………………………………………..…6 1 .....Table of Contents Bonus Shares 2 Circumstances for issuing Bonus Shares 2 Terms and Conditions for issue of bonus shares…………………………………………………………………………………………………… …………………………………………....5 Post Issue of Bonus Shares…………………………………………………………………………….4 Compliance Check List and generation of various Documents and Registers during Pre and Post Issue………………………………………………………………………………………………………..3 Guidelines for Bonus Issue……………………………………………………………………………….5 List of companies which issues Bonus Shares in 2015-16…………………………………………….3 Restriction on Bonus issue……………………………………………………………………………………………………… ……….3 Completion of bonus issue……………………………………………………………………………..6 References……………………………………………………………………………………………… ……………………………………..

the company will go for bonus issue. 2 . which investors will earn if dividends are distributed to them. However. although the total number of issued shares increases. The issue of bonus shares increases the total number of shares issued and owned. Bonus shares can be issued only by companies which have accumulated large free reserves i. a bonus issue does not risk diluting your investment. Dividend payment is not obligatory for the company but if the company has huge accumulated profits investors may demand for dividend. Circumstances for issuing Bonus Shares If a company wants to avoid showing large amounts of distributable income on the balance sheet and ploughing back its profits to capital. reserves not set apart for any specific purpose and which can be distributed as dividend. this is compensated by the fact that you will own more shares. in the future years also the shareholder will expect the same rate of dividend.Bonus Shares A bonus share is an extra free share given to current shareholders in a company without any additional cost based upon the number of shares that the shareholder already owns. Therefore. then it is advisable to retain the profits by the company itself instead of paying heavy dividends. it can issue bonus shares. 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). thus increasing its employed capital. bonus shares can be issued out of balance in the share premium account. If a company can earn more returns than market rate of return. This usually happens after a company has made profits. a bonus issue can be seen as an alternative to dividends. Hence in case of heavy profits to avoid heavy dividend payments company can convert its accumulated profits into share capital by issuing bonus shares. when the higher rate of dividend declared. which will enhance the national income of the country. Bonus shares are issued by conversion of the reserves and surplus of the company into shares.e. The consideration may be either in the form of cash or kind. Dividend payment entails cash outflow also dividends must be kept stable and should increase gradually. This also perk up market image of the company. Although the earnings per share of the stock will drop in proportion to the new issue. which it has to distribute otherwise. The whole idea behind the issue of Bonus shares is to bring the Nominal share Capital in line with the true excess of assets over liabilities Companies issue shares in lieu of consideration. When the company cannot have the sufficient cash balance to declare dividends. Therefore the value of your investment should remain the same although the price will adjust accordingly. and it desires to capitalize these profits the companies will go for issuing bonus shares. To avoid adverse effects on working capital the companies issue bonus shares. so the companies will issue the bonus share. Unlike a rights issue. The other reason is high declaration of cash dividends is prohibited by the Government. the ratio of number of shares held by each shareholder remains constant. When the companies accumulated huge profits and reserves. it does not increase the value of the company.

(b) It has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it. (2) The equity shares reserved for the holders of fully or partly convertible debt instruments shall be issued at the time of conversion of such convertible debt instruments on the same terms or same proportion on which the bonus shares were issued. 1956 or any other applicable law for the time being in force. a listed issuer may issue bonus shares to its members if: (a) It is authorized by its articles of association for issue of bonus shares. Completion of bonus issue (1) An issuer. to bring down the abnormally high rate of dividend on its capital to avoid labor problems i. (d) the partly paid shares. announcing a bonus issue after the approval of its board of directors and not requiring shareholders’ approval for capitalization of profits or reserves for making the bonus issue. unless it has 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 thereof. to pay bonus to shareholders of the company without affecting its liquidity and earning capacity of the firm. the issuer shall pass a resolution at its general body meeting making provisions in the articles of associations for capitalization of reserve. capitalization of reserves.: Provided that if there is no such provision in the articles of association. etc.e. Bonus shares only against reserves. gratuity and bonus. (2) Without prejudice to the provisions of sub-regulation (1). etc. demand for higher wages. the bonus share shall not be issued in lieu of dividend. are made fully paid up. (c) It 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. Terms & Conditions Conditions for bonus issue [2] Subject to the provisions of the Companies Act.The objectives of issuing bonus shares is to bring the amount of issued and paid up capital in line with the capital employed so as to depict more realistic earning capacity of the company. Restriction on bonus issue (1) No issuer shall make a bonus issue of equity shares if it has outstanding fully or partly convertible debt instruments at the time of making the bonus issue. if any outstanding on the date of allotment. shall implement the bonus issue within fifteen days from the date of approval of the issue by its board of directors: Provided that where the issuer is required to seek shareholders’ 3 . if capitalized in cash (1) The bonus issue shall be made out of free reserves built out of the genuine profits or securities premium collected in cash only and reserves created by revaluation of fixed assets shall not be capitalized for the purpose of issuing bonus shares.

(2) Once the decision to make a bonus issue is announced. 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. the bonus issue shall be implemented within two months from the date of the meeting of its board of directors wherein the decision to announce the bonus issue was taken subject to shareholders’ approval. 582(A company which announces bonus issue after the approval of board of directors and does not require shareholders’ approval for capitalization of profits or reserves for making bonus issue as per the Articles of Association. Compliance Check List 1) Source out of which the bonus issue is to be made. The declaration of bonus issue. a) Current Profit || Value b) Current Reserves || Value c) Current Securities premium account | Value 2) Quantum of Issue a) No of shares b) Nominal value per share 4 . he should then have the following “Compliance Check List” which will enable him to prepare the required documents and registers during Pre and Post issue of bonus shares. the issue cannot be withdrawn. 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. pending conversion of FCDs/PCDs. shall implement bonus issue within fifteen days from the date of approval of the issue by the board of directors of the company and shall not have the option of changing the decision). The bonus issue shall be made out of free reserves built out of the genuine profits or share premium collected in cash only. issue any shares by way of bonus unless similar benefit is extended to the holders of such FCDs/PCDs. is not made. Guidelines for Bonus Issue[3] 1) A listed company proposing to issue bonus shares shall comply with the following: 2) 3) 4) 5) 6) 7) a) No company shall. b) The shares so reserved may be issued at the time of conversion(s) of such debentures on the same terms on which the bonus issues were made. in lieu of dividend. gratuity. bonus etc. are made fully paid-up. Compliance check list and generation of various documents and registers during pre and post issue Once the professional understands the requirements of Section 63 as stated above. if any existing. through reservation of shares in proportion to such convertible part of FCDs or PCDs. Reserves created by revaluation of fixed assets are not capitalized. The bonus issue is not made unless the partly-paid shares.approval for capitalization of profits or reserves for making the bonus issue.

3.1 b) Making entries in the Register of Members in Format No. he could then proceed to generate the following documents during the pre-issue of bonus shares a) Draft Notice and the draft minutes of the Board Meeting for considering the following: I. Approving the bonus issue recommended by the Board c) Draft Notice and Minutes of the Board Meeting for I. For instance.1 c) Making entries in the Register of Directors and Key Management Personnel and their Shareholdings as per Section 170 d) Filing Form No. Consequences of issue of Bonus Shares Only fully paid-up shares are eligible for bonus. 4. The total market value of the company would. The share price of the company gets adjusted according to the bonus ratio. For alteration of Articles which do not provide for capitalization of reserves only when required 2.14 with the Registrar of Companies for registering the special resolution (only when the Articles of Association is amended for making provision for capitalization of profits) Post issue of Bonus Shares a) Preparation and Issue of Share Certificates in the Format No.c) Total 3) Intended date of Board meeting a) For alteration of Articles subject to the approval of the shareholders(if required) b) For recommending the issue c) Convening the EGM 4) Intended date of EGM for considering the alteration of article if required and/or approval of the bonus issue 5) Intended date of board meeting for allotment of bonus shares Pre Issue work for the Issue of Bonus Shares Once the professional prepares the compliance check list. the post-bonus price would be Rs 100. Allotment of Bonus shares d) Filing of Form No. [4] Market observers believe that bonus shares are being given to improve liquidity and arrest the free fall in stock prices. 5 . Approving the Bonus Issue recommended by the Board b) Draft EGM Notice.3 with regard to Allotment of Bonus shares. For alteration of Articles (which do not provide for capitalization of reserves) II. remain the same. if the share price of the company is Rs 200 before the bonus and it issues bonus shares in the 1:1 ratio. 7. Convening the EGM 1. however. 7. Alteration of Articles (only when required) II. Recommending the bonus issue III. explanatory Statement and the Minutes for considering the following special business I.

pdf 6 .in/guide/DipGuidelines2009.in/Sebidip/chap9.sebi.List of companies which issued Bonus shares in 2015-16 [5]: COMPANY Filtra Consult Visagar Polytex Atahrv Ent Tide Water Oil Rama Steel Tube Assoc Alcohol Ideal Optics Mindtree ABans Enterpris Vegetable Prod Control Print Kothari Product Allcargo Log Marico Venkys(India) Marathon Nextgen eClerx Services Mangal Credit Fairdeal Fila Monarch Health Atreya Petro Ruby Mills Dhabriya Polywood Vinaditya Trad Tiger Logistics Bonus Ratio 3:2 1:3 1:1 1:1 4:1 1:1 2:5 1:1 7:1 9:5 1:2 1:2 1:1 1:1 1:2 1:2 1:3 5:1 1:10 3:4 1:3 1:1 1:4 47:1 3:2 Announcement 22-02-2016 10-02-2016 10-02-2016 28-01-2016 27-01-2016 22-01-2016 29-01-2016 18-01-2016 07-01-2016 26-08-2015 17-11-2015 10-11-2015 06-11-2015 04-11-2015 14-09-2015 03-11-2015 02-11-2015 05-11-2015 13-08-2015 13-10-2015 31-08-2015 31-08-2015 01-09-2015 07-09-2015 01-09-2015 DATE Record 08-04-2016 02-04-2016 19-03-2016 17-03-2016 15-03-2016 11-03-2016 12-03-2016 10-03-2016 04-03-2016 22-02-2016 12-01-2016 06-01-2016 31-12-2015 24-12-2015 22-12-2015 22-12-2015 18-12-2015 19-12-2015 31-10-2015 30-10-2015 26-10-2015 24-10-2015 23-10-2015 16-10-2015 16-10-2015 Ex-Bonus 06-04-2016 30-03-2016 17-03-2016 16-03-2016 14-03-2016 10-03-2016 10-03-2016 09-03-2016 03-03-2016 18-02-2016 11-01-2016 05-01-2016 30-12-2015 22-12-2015 21-12-2015 21-12-2015 17-12-2015 17-12-2015 29-10-2015 29-10-2015 23-10-2015 21-10-2015 21-10-2015 15-10-205 15-10-2015 Table 1 References [1]http://corporatelawreporter.com/2014/03/26/issue-bonus-shares-companiesact-2013/ [2] http://www.gov.pdf [3] http://www.nic.divest.

moneycontrol.[4]http://taxguru.com/stocks/marketinfo/bonus/ 7 .in/company-law/impact-companies-act-2013-rules-bonus-issueshares.html [5] http://www.