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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.
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-
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-
Also, Read: Procedure for Shares issue through Right Issue
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:
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-
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-
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