Procedure for Issue of Bonus shares under Companies Act
BONUS SHARES MEANING
Bonus Shares are additional shares issued by a firm with a share capital to its current shareholders without receiving any payment from those shareholders.
Existing shareholders are offered free additional shares in proportion to their current holdings.
The basic principle behind a bonus issue is that the total number of shares issued grows at a fixed ratio of shares held to outstanding shares.
For Example: If an existing shareholder of the company has 200 shares and the corporation declares a 4:1 bonus, he will receive four additional shares for free. That’s a total of 800 shares for free, and his total holdings will rise to 1000 shares after the Bonus Shares are issued.
Advantage of Bonus Shares Issue
- The issuance of bonus shares increases the number of outstanding shares and the participation of smaller investors in the Company’s stock, improving liquidity.
- When an investor receives bonus shares, he or she is not required to pay any taxes.
- Bonus shares are a sign of the company’s health. It’s a hint that the company will be able to service its higher debt.
- The bonus issuance allows the corporation to save money and reinvest it back into the business.
- The perception of the company’s size grows as the issued share capital grows.
Increase the Company’s share base by encouraging retail participation.
- Issuing additional shares & using cash for business growth of Company increases investor belief in operation of the Company.
ISSUANCE OF BONUS SHARES RULE & REGULATORY OF COMPANY LAW
In Case of Listed Company: SEBI (ICDR) Regulations, 2009
SOURCES OF FOR ISSUANCE OF BONUS SHARE:
- Under Section 63 state that company can issue bonus shares(fully paid-up) to its members out of-
- Securities premium A/c or
- Free reserves or
- Capital redemption reserve A/c
In Case of Unlisted Company:
- Rule 14 of Companies (Share Capital and Debentures) Rules, 2014 and
- Under Section 63 of Companies Act, 2013
Exception in Case of Bonus Share:
- Company can Not issue of bonus shares out of capitalizing reserves created by Revaluation of assets.
CONDITIONS FOR ISSUE OF BONUS SHARE:
The following Requirements must be satisfied before bonus shares issuing:
- Bonus Shares Issue is authorized by its AOA;
- Bonus Shares are being issued on the recommendation of the BOD & been authorized in general meeting of the company.
- Companyhas not defaulted in principal or payment of interest in respect of fixed depositsor debt securities issued by it;
- Company has not defaulted in respect of Payment of statutory dues of Employees, Like that contribution to gratuity, provident fund & bonus.
- Partly paid-up shares, if any O/s on date of allotment are made fully paid-up.
- It complies with such requirements as may be specified.
What are the restrictions on withdrawal of bonus issue?
- Company which has once announced decision of its BOD recommending a bonus issue shall not subsequently withdraw announcement of bonus share (Rule 14 of Companies (Share Capital and Debentures) Rules, 2014)
ISSUANCE OF BONUS SHARE CHECKLIST
While issuance of Bonus Shares, below checkpoints must be ensured:
- Company AOA authorizes issue of bonus share. If the same thing is not found, then we needed to amend the AOA.
- Company authorized capital is proper adequate sufficient to issue Bonus Shares, If it not sufficient capital then authorized capital increase first.
- Bonus issue were issued using free reserves derived from genuine profits, capital redemption reserve accounts, and securities premiums.
- The company has not defaulted in paying interest or principal on fixed deposits or debt instruments it has issued, or in paying statutory dues to employees such as provident fund contributions, gratuities, or Bonus issue.
- Reserves created as a result of asset revaluation are not utilised to issue Bonus Shares.
- Any party paid-up shares, if any, are made fully paid-up before the Board of Directors recommends the bonus issuance.
- Bonus issue are not issued in place of dividends.
WHAT IS PROCEDURE FOR ISSUE OF BONUS SHARES?
- Issue a notice of board meeting at least seven days before the meeting [Section 173(3)].
- In the case of a publicly listed company, notify the stock exchange at least two working days before the Board Meeting.
- Hold a Board Meeting and ask the Board to approve the below proposal:
- To recommend the Bonus Issue;
- To Fix Ratio & quantum of Bonus Issue;
- To approve the Notice of General Meeting;
- To decide the date, Venue & Time of EGM;
- To authorize director or CS for issue of Notice of GM & do all required acts for issuance of Bonus Shares.
- Pass BOD Resolution for Issue of Bonus Shares and Alteration in AOA/ MOA(Subject to approval of Members), if so required.
- Issue Notice for calling EGM at least twenty-one clear days before the date of EGM.
- Pass Ordinary-Resolution by Hold the Extra-Ordinary General Meeting for issue of bonus shares.
- Then Need to file Form MGT-14with the ROC within thirty days of passing of the Ordinary-Resolution. Below documents shall be attached with Form MGT-14:
- Notice with Explanatory Statements.
- Altered AOA, If AOA altered Certified Copy
- All Resolution Passed at EGM Certified True Copy
- Altered MOA, if MOA altered Certified Copy
- Next Issue Notice of BOD & hold BOD Meeting for passing resolution for Bonus Shares Allotment.
- Next Step is to file (Return of Allotment)- Form PAS-3 within 30 days of allotment. We have make sure that below documents shall be attached with form PAS-3:
- Board Resolution Certified True Copy.
- Ordinary Resolution passed for issue of Bonus Shares Certified Copy.
- Allotees List, address, mentioning name, Number of Shares Allotted, Pan Card Number.
9. Within two months of the bonus issue’s allotment, issue Shares Certificates to all allottees.
10. Immediately after allotment of shares, inform the Depository of the facts of the allotment.
FAQ’s issue of Bonus shares
Q1.: Is it possible for a corporation to issue preference shares in addition to equity shares in a bonus issue?
Answer: Because the Companies Act of 2013 does not specify any specific types of shares that can be issued under a bonus issue, a firm can issue both equity and preference shares.
Q2.: What will be the bonus share issue price?
Answer: Since Bonus Shares are not issued at a cost, the issue price is irrelevant.
Q3.: Is it possible for a firm to issue Bonus Shares to people who aren’t already shareholders?
Answer: No, a corporation cannot issue Bonus Shares to anyone other than present shareholders. Bonus shares can only be issued to members/shareholders whose names appear in the Register of Members on the record date.
Q4.: Can a company issue Bonus Shares that are only partly paid up?
Answer: No, Bonus Shares will never be issued unless they are fully paid up.
Q5.: Is it possible for a company to issue Bonus Shares in a different ratio to its current shareholders?
Answer: No, the company cannot issue bonus shares in varied ratios; instead, bonus shares will be issued to existing shareholders in proportion to their current holdings.
Q6.: Is it possible for a company to issue Bonus Shares using reserves generated by asset revaluation?
Answer: Section 63 mandates that no bonus shares may be issued by capitalization reserves created by asset revaluation.
- Securities premium account; or
- capital redemption reserve account. or
- Its free reserves;
Q7.: Can a company withdraw its proposal for a bonus issue after it has been declared by its Board of Directors?
Answer: Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014 states that a company that has declared its Board of Directors’ decision to recommend a bonus issuance may not withdraw it subsequently.
Q8.: Is it possible for a company to give Bonus Shares than a dividend?
Answer: A bonus issue cannot be substituted for a dividend.
Q9.: What are the most common methods for a company to issue Bonus Shares?
Answer: Section 63 permits a company to issue fully paid-up bonus shares to its members as an out-of-pocket expense.
Q10.: How may a company issue Bonus Shares if its AOA prohibits or restricts the issuance of Bonus Shares?
Answer: In this situation, a company can change its AOA by adopting a Special Resolution under Section 14 of the Companies Act, 2013.
Q11.: Can the company allot shares under a Bonus Issue if the shares are partially paid up?
Answer: In this situation, the company has been unable to issue shares. Before the bonus issuance is recommended by the Board of Directors, any party paid up shares are made fully paid up.