Bonus Issue of Shares

A bonus issue of shares, also known as a scrip issue or bonus shares, refers to the distribution of additional shares to existing shareholders without any consideration. This means shareholders receive extra shares based on the number of shares they already own

Issue of Bonus Shares is one of its types of further issue of shares made by a company having share capital to its existing shareholders in proportion to their existing holdings without consideration for issuance of such shares.

The concept behind Bonus Issue is that the total number of shares increases with a constant ratio of number of shares held to the number of shares outstanding.

REGULATORY FRAMEWORK FOR ISSUANCE OF BONUS SHARES:

The Companies Act, 2013, specifically Section 63, governs the issuance of bonus shares. The Act mandates that bonus shares can be issued from:

Free reserves built out of genuine profits (excluding revaluation reserves).
Securities premium account.
Capital redemption reserve account

In the case of unlisted companies, the following provisions need to be taken care of:

Section 63 of the Companies Act, 2013.
Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014.

In the case of listed companies, the following provisions need to take care:

Section 63 of the Companies Act, 2013.
Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014.
SEBI (ICDR) Regulations, 2018

Note:

No issue of bonus shares shall be made by capitalizing reserves created by the revaluation of assets. Further, while issuing bonus shares, a company has to satisfy the following conditions:

The issue of Bonus Shares is authorized by Article of Association of Company
Bonus Shares are being issued on the recommendation of the Board and been authorized in the general meeting of the company;
The Company has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;
The company has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus;
The partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;
It complies with such conditions as may be prescribed.
A Company which has once announced the decision of its Board recommending a bonus issue shall not subsequently withdraw the same.

PROCEDURE FOR ISSUE OF BONUS SHARES:

1. Issue Notice of Board Meeting at least before 7 days before the date of Board Meeting [Section 173(3)].
2. In the case of listed entity, give prior intimation to the stock exchange at least two working days in advance of the date of Board Meeting.
3. Hold the Board Meeting and get the following proposal to be approved by the Board:

- - To recommend the Bonus Issue;
  - To Fix Ratio and quantum of Bonus Issue;
  - To approve the Notice of General Meeting;
  - To decide the date, Time and Venue of Extra-Ordinary General Meeting;
  - To authorize any director or Company Secretary for issue of Notice of General Meeting and do all necessary acts for issuance of Bonus Shares.
  - Pass Board Resolution (Subject to approval of Members) for Issue of Bonus Shares and Alteration in MOA/AOA, if so required.

1. Issue Notice for calling Extra-Ordinary General Meeting at least 21 clear days before the date of Extra-Ordinary General Meeting.
2. Hold the Extra-Ordinary General Meeting and Pass Ordinary-Resolution for issue of bonus shares.
3. File Form MGT-14 with the Registrar within 30 days of passing of the Ordinary-Resolution. The following documents shall be attached with Form MGT-14:

- - Notice with Explanatory Statements;
  - Certified True Copy of All Resolution Passed at Extra-Ordinary General Meeting,
  - Certified Copy Altered MOA, if MOA altered
  - Certified Copy of Altered AOA, If AOA altered

1. Issue Notice of Board Meeting and hold Board Meeting for passing resolution for Allotment of Bonus Shares.
2. File Form PAS-3 (Return of Allotment) within 30 days of allotment. The following documents shall be attached with form PAS-3:

- - Certified True Copy of Board Resolution;
  - Certified Copy of Ordinary Resolution passed for issue of Bonus Shares;
  - List of Allotees, mentioning name, address, Pan Card Number, Number of Shares Allotted.

1. Issue Shares Certificates to all the allottee within two months from the date of allotment of bonus issue.
2. Intimate the details of allotment of shares to the Depository immediately on allotment of such shares.