What is the Procedure for Shares Issue through Bonus Issue?

Priyanka Bajpayee

16 Nov, 2020

For capitalizing the Profit, A Company may if its article provides issue fully Paid-Bonus shares. When the Company accumulates Profit, Bonus shares are issued to the pre-existing shareholders free of cost. Bonus shares are issued to replace the dividend, which has to be given to the shareholders, thereby giving them free shares.

When the Company accumulates large distributable profits and prosperous, it transfigures the accumulated profit into capital and divides the capital among the existing shareholders in proportion to their privilege.

Key Significance of issuing Bonus Shares-

• The flow of funds is not affected adversely.
• With the increase in the number of shares in the company, the Market value of the member’s shareholding increases.
• Bonus shares are not an income. Hence, it is not a taxable Income.
• With the issue of bonus shares, the paid-up share capital of the company increases.
• The share capital is much more relevant to the employed asset.
• The shareholding prior to the bonus issue remains the same.

The company’s motive for issuing the bonus shares is to enhance retail involvement increase the equity base. However, when the share prices increase, the investors may find it hard to buy the shares.

Recently, the Companies Act, 2013 has added Section 63 for the provision of Bonus shares. As per the Companies act 2013, Section- 63(1), the Company can issue fully paid-up bonus shares to its members, shareholders in any manner whatsoever:

A. Free reserves.

B. Securities Premium Account.

C. Capital Redemption Reserve Account.

Under what circumstance the Bonus share cannot be issued-

• Re-valuation of asset-based reserve capitalization.
• When there is a condition that the company cannot replace dividend with a bonus share.

Criteria for Issue of Bonus Shares– The Company shall capitalize its profits or reserve for the purpose of issuing the Bonus share by complying with the below-mentioned Condition-

• Authorized by the Article of Association,
• The Issue of Bonus share is within the limit Authorised Share Capital.
• Recommendation of the Board, bypassing the resolution in the general meeting.
• No Default has been made in the payment of interest or principal in terms of fixed deposits.
• No default has been made in respect of the statutory dues of the employees.
• In case of the outstanding amount, the partly paid-up shares are made fully paid upon the date of allotment.
• Bonus shares cannot be issued in place of dividends.
• Quantum of Bonus issue.

Also, Read: Procedure for Shares issue through Right Issue

Steps for Issuing of Bonus Shares: For issuing the Bonus Shares below-mentioned steps are required

Conduct a Board Meeting:

As per Section 173(3) of the Companies Act,2013, For conducting a Board meeting, a Company must issue a Notice at least 7 days before the date of conducting a Board meeting.

Criteria of Board Meeting:

• The quorum of the Board of Directors shall be present, i.e. 1/3rd of the total strength of Board or 2 directors, any of them is higher can be taken.
• Once the resolution is passed by the Board of directors, decide the number of bonus shares to be issued along with the date, time and venue of the general meeting for the announcement of issuance of shares.
• To issue the notice for conducting the general meeting at least 21 days earlier from the date of conducting the general meeting to All the Directors, Shareholders and Auditors of Company.
• Proper disclosure in the notice regarding the agenda of the meeting along with the date and venue of the meeting.
• A Company is required to file e-form- MGT-14 within 30 days from the date of passing the Board Resolution along with the resolution passed in the general meeting as an attachment.

Convene a General Meeting: Approve the issue of Bonus shares by passing the Special resolution.

Filling PAS-3-Once the resolution is passed, file the Return of Allotment in Form PAS-3.

Attachments required-

• Board Resolution.
• List of Allottee within 30 days from the date of allotment along with the Name, Address, occupation and a number of shares allotted to each of the allottees.
• The list shall be certified by the authorized signatory.

Format of List of Allottee-

Issue Share Certificates: The company is required to issue allotment letters and share certificates within 2 months from the date of share allotment.

Conclusion-The above-mentioned content is all about what is Bonus shares? and what is the procedure involved while issuing the Bonus Share? Further, Following are the formats required while issuing the Bonus shares-

Format of the notice of Board meeting for issuance of Bonus shares-

Format of Resolution for Board Meeting For Issue Of Bonus Shares-