Shareholders make investments in the Company by subscribing to its share capital and in turn a handsome return is what is expected on such investments. The Company shares return on the investments made by its shareholders either by declaring a dividend or by issuing bonus shares to them. Bonus shares are thus, additional shares given to the existing shareholders without receiving any payment from such shareholders in proportion to the shares held by them. These are company’s accumulated earnings which company distribute as free shares. Such bonus shares can be issued to its members out of:
- Free Reserves
- Securities Premium Account
- Capital Redemption Reserve Account.
Note: The Company shall not issue bonus shares out of capitalizing reserves created by Revaluation of Assets.
Relevant Section and Rules:
- Section 39, 56, 61, 63, 173 of the Companies Act, 2013
- Rule 5, 14 of the Companies (Share Capital & Debentures) Rules, 2014
- Rule 30 of the Companies (Incorporation) Rules, 2014
- Rule 12 of the Companies (Prospectus and Allotment of Securities) Rules, 2014
- Regulation 293, 295 of the SEBI (Issue of Capital and Disclosures Requirement Regulations 2018
- Regulation 30, 42, 44, 46 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
- The company shall capitalize its profits or reserves for the purposes of issuing fully paid-up bonus shares subject to the following (Section 63(2) and Regulation 293):
- Authorization by the Articles of Association
- Approval of its Shareholders/Members by passing a special resolution in a duly convened general meeting, basis recommendations of the Board
- No default in payment of interest or principal in respect of fixed deposits or debt securities so issued
- No default in payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus
- Make all the outstanding partly-paid up shares on the date of allotment as fully paid-up
- None of its promoters or directors is a fugitive economic offender.
- The company shall abstain from withdrawing from the decision of its Board recommending a bonus issue, if it has been announced. (Rule 14)
- The Issuer Company shall implement the bonus issue:
- within fifteen days from the date of board meeting where shareholders’ approval is not required for capitalization of profits or reserves for making the bonus issue
- within two months from the date of board meeting where shareholders’ approval is required for capitalization of profits or reserves for making the bonus issue. (Regulation 295)
- Convene a Meeting of Board of Directors [As per section 173 & SS-1]:
- The Company shall convene a Meeting of its Board of Directors to pass a Board resolution for the following:
- Approving the proposal of issue of Bonus shares, the quantum and ratio of bonus shares to be issued, allotment of such bonus shares, and record date for such issue
- Authorizing the Company Secretary or such other concerned official, as the case may be, for issuing the notice of general meeting, circulating the minutes of the Board Meeting where the proposal of bonus issue was approved and do such other acts so as to give effect to the decision of the Board.
- The Listed Company shall submit the outcome of Board Meeting as soon as reasonably possible and but not later than 30 minutes from the conclusion of the Board Meeting and post the same on its website within 2 working days. Refer to the Procedure for Conducting Board Meeting for the detailed procedure.
- In the absence of any provision in respect of issuance of bonus shares in the Articles of Association (AoA), the Company shall make amendments in its AoA and requisite Board resolution shall also be passed to this effect. Refer to the Procedure for Alteration of Articles of Association for the detailed procedure.
- In case, the bonus shares issue is not within the limit of total authorized share capital of the company, then necessary steps shall be taken to increase the authorized share capital and requisite Board resolution shall also be passed for amending the Memorandum of Association (MoA). Refer to the Procedure for Increasing Authorized Share Capital of Company for the detailed procedure.
- Intimations to the Stock Exchange about the Bonus Shares Issue [Regulation 42]:
- The listed entity shall intimate the Stock Exchange(s) where it is listed or where stock derivatives are available on the stock of such listed entity or where listed entity’s stock form a part of an index on which derivatives are available, about the record date for such issue of bonus shares, at least seven working days (excluding the date of intimation and the record date) in advance.
- The listed entity shall recommend or declare all the dividend and/or cash bonuses at least five working days (excluding the date of intimation and the record date) before the record date fixed for the purpose.
- For securities held in physical form, the listed entity may, announce dates of closure of its transfer books in place of record date for complying with requirements regulation 42.
- The record date is the cut-off date decided by the company to be eligible for bonus shares and all shareholders who have shares in their DEMAT account on the record date will be eligible to receive bonus shares from the company.
- Convene Extra Ordinary General Meeting [Section 96, 100 and Secretarial Standard (SS-2)]:
- The Company shall convene a General Meeting of its Members to pass an Special Resolution for approving the proposal of such issue of Bonus shares.
The Listed Company shall submit to the stock exchange the details of the voting results as soon as reasonably possible and but not later than the following:
- twelve hours from the occurrence of the event or information, in case the event or information is emanating from within the listed entity
- twenty four hours from the occurrence of the event or information, in case the event or information is not emanating from within the listed entity, from the conclusion of the meeting and post the same on its website.
- Filing Form MGT-14 with ROC:
The Company shall file a copy of the Board Resolution and Special Resolution passed in its duly convened Board meeting and General meeting in Form MGT-14 within 30 days of passing such resolution along with the requisite documents and the fees, with the Registrar of Companies (ROC).
- Filing Form PAS-3 with ROC [Section 39(4) & Rule 12]:
The Company shall file Form PAS-3 within 30 days of passing of the resolution for allotment of shares with following attachments:
- Copy of Resolution passed in General Meeting authorizing the issue of bonus shares
- Copy of Board Resolution for Allotment of Shares
- List of Allottees
- Any other mandatory attachment if any.
- Issue of Shares Certificates [Section 56(4)]:
- The Company shall issue share certificate in Form SH-1 within 2 months from the date of allotment of shares. In case, the securities are dealt with in a depository, the company shall intimate the details of allotment of securities to the depository immediately on allotment of such securities.
- Every share certificate of the Issue shall be attracted stamp duty as per the provisions of the Indian Stamp Duty Act.
- Maintenance of Register of Members [Rule 5(4)]:
The Company shall make an entry of the particulars of every share certificate so issued in respect of bonus issue, in the Register of Members along with the name(s) of person(s) to whom it has been issued and the date of issue.