Issue of Bonus Shares

Hardik Gandhi
 Meaning of Bonus Shares
• A bonus share is a free share issued without any consideration
to an existing shareholder in the ratio of number of shares
held by shareholders.

• Issue of Bonus share will decrease the Reserves and Surplus

and increases the issued capital but does not bring any
change in cash flow and net worth of the company.

• A company may capitalise profits and reserves –

1. By converting partly paid equity shares into fully paid
shares
2. By issuing fully paid bonus shares to the existing
shareholders
Contd.
• As per Sec 63(1) Sources for Fully paid bonus shares:
 Free Reserves
 Security premium account
 Capital Redemption Reserve Account (CRR)
 SEBI Guidelines
• The Company must be authorized by its Articles of Association. If AOA are
not authorized then Resolution shall be passed in General Board Meeting
(GBM) to amend the AOA.
• The company should not have defaulted in payment of any interest or
principal in respect its fixed deposits and interest on debentures or
redemption of debentures.
• The company should not be defaulted in payment of its statutory dues to the
employees such as contribution to PF, gratuity, bonus, minimum wages,
workmen’s compensation, retrenchment, payment to contract labor etc.
• Bonus Shares are issued to the fully paid up existing equity shareholders
only. Partly paid-up Equity Shares can be made fully paid up through Bonus
• No company shall pending the conversion of FCDs/PCDs, issue any shares
by way of bonus unless similar benefit is extended to the holders of
FCDs/PCDs, through reservation of shares in proportion to such convertible
part of FCDs/PCDs. The shares so reserved may be issued at the time of
conversion of such debentures on the same terms on which the rights or
bonus issues were made.
Contd.
• Bonus Shares are issued out of free reserves:
– Profits which are available for Dividend
– And Capital Profits like security premiums and capital realized in
cash only
• Statutory Reserves shall not be utilized for Bonus Issue.
• Reserves created by revaluation of fixed assets (revaluation
reserve) shall not be utilized for Bonus Issue
• A company which announces its bonus issue after the approval
of BoD must implement the proposal within a period of 15 days
from the date of such approval.