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Issue of Bonus Shares under Companies Act 2013

Bonus issue means an issue of additional shares at no cost to current shareholders in the proportion to their existing holding in the company. It is also known as "Capitalisation of profits". As the company may capitalize its reserves by issuing bonus shares to existing members.

Example

ABC ltd. announced a bonus issue in the ratio of 1:3 i.e 1 shares for every 3 shares held. Shareholder Z has 18,000 shares before the announcement of bonus issue. In the given case, shareholder Z will be entitled to have 6,000 bonus shares (18000 shares/3*1) Total number of share Z has after bonus issue = 24,000 (18,000+6,000)

Section 63(1) of Companies Act - Sources of bonus issue

Fully paid-up bonus shares can be issued out of the following:

(i) Free Reserves

(ii) Securities premium collected in cash

(iii) Capital redemption reserve

Note, bonus shares cannot be issued out of revaluation reserves created by the revaluation of assets.

Section 63(2) of Companies Act - Conditions for issue of bonus shares

Prior to the bonus issue, a company must fulfill the following conditions:

  • Issue of bonus shares must be authorized by Articles of Association.
  • Bonus issue, on the recommendation of the board, must be authorised in the general meeting of the company.
  • There must be no default in payment of interest or principal in respect of fixed deposits or debt securities issued by the company.
  • There must be no default in payment of statutory dues of the employees like contribution to provident fund, gratuity, etc
  • All the shares must be fully paid up
  • Other conditions may be prescribed.

Section 63(3) of the Companies Act

The bonus shares shall not be issued in lieu of dividend.

Procedure for issue of bonus shares

1. Notice of meeting

The first step for the bonus issue is to Call for a Board Meeting. A Meeting of the Board should be called by giving a notice in writing to every Director at least 7 days before the Board Meeting.


TaxGyata Team

TaxGyata Team

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