Bonus shares are given to the pre-existing shareholders free of cost in case the company accumulates benefits on earning. This is done to replace the dividend which has to be given to the shareholders thereby giving them free shares.
As the bonus shares capitalize a fraction of the reserve, it is just a bookkeeping transaction and therefore its benefits are:
1. The share capital is much more relevant to the employed asset.
2. much more manageable revenues making its ability much more in the market. Even though the share units increases but the shareholding remains the same prior to the bonus issue which is also known as to be scrip issue, bonus shares, or capitalization issue.
While this seems to be in line with the rights issue but unlike the bonus share which is generated just by money transfer from company reserve to equity capital i.e. the capitalization of reserves. It is beneficial for the companies having a fruitful revenue reserve and also wants to capitalize liquid assets.
The main agenda for companies to issue bonus shares is to heighten retail involvement and further hike the equity base. However, when the share prices increase, the investors may find hard to buy the shares. Also to note that the overall capital of the company will remain the same even if the bonus shares issued.
Earlier when the Controller of Capital issues was in power they were followed by the companies but when SEBI came into existence, unlisted Private Limited Companies and Public Limited Companies were liberated for issuing bonus shares.
And recently the Companies Act, 2013 has added Section 63 for bonus share provision. As per the Companies act 2013, Section- 63(1), the fully paid-up bonus shares can be issued when:
A. Free reserves.
B. Securities Premium Account.
C. Capital Redemption Reserve Account.
Condition when no bonus shares can be issued:
A. Re-valuation of asset-based reserve capitalization
B. cannot replace dividend with a bonus share
Steps for Issuing of Bonus Shares:
Call Board Meeting:
As per Section 173(3) an Issue Notice of at least 7 days for having a meeting of Board of Directors
Board Meeting Holding:
- Quarom as per Section 174(1) requiring Meeting of Board of Directors is 1/3rd of the total strength of Board or 2 directors, any of them is higher can be taken
- Place resolution, pass it and decide the number of bonus share to be issued along with the date, time and venue of general meeting for the announcement of issuance of shares
- Section 101 of the Companies Act 2013 is to provide issue of notice of EGM at least 21 days earlier to All the Directors, Members, Auditors of Company.
- Notice will be having complete date time and venue of the general meeting as well as the director authorized for the issue of right issue.
- A particular statement has to be conveyed as of business discussion in the EGM with place date, day and time of the board meeting
It is required to file e-form- MGT-14 within 30 days of Passing of Board Resolution for the issue of shares with an attached resolution for issue of shares.
Convene a General Meeting:
After checking out the quorum, and auditor and then to pass Ordinary Resolution for bonus issue of shares.
Filling of e-Forms:
File PAS-3 within 30 days of the passing of Board Resolution for allotment of shares including some attachments such as Ordinary Resolution for Bonus issue of shares, Board Resolution for allotment of shares, List of Allottees. (as per Annexure B of PAS-3)- having Name, Address, occupation if any and number of securities allotted to each of the allottees and further the list shall be certified by the signatory of the form pas-3.
Issue Share Certificates:
The company is mandated to issue shares within 2 months from the date of share allotment.
Complete Issue of Bonus Share Check-List:
->Check whether Authorized capital is sufficient for the issue of Bonus Shares.
- It is ok if Authorized capital is enough to issue bonus shares
- In case the authorized capital is insufficient then first modify the Capital of Company by changes in MOA.
->Check out Provision for Bonus issue in Article of Association of Company.
- It is ok if AOA authorize to issue Bonus Share
- In case AOA does not authorize to issue Bonus Shares then changes required in the Article of Association.
->Check the availability of resources for the issue of Bonus shares.
->Check Quantum of Bonus shares.
->Check no default in the payment of interest or principal in respect of fixed deposit or debt securities issued by it.
->Check no default in the payment of statutory dues of the employees, such as gratuity, contribution to provident fund and bonus.
->Check is there any partly paid-up share on the date of allotment.
- It is ok if there are no Party paid-up shares
- In case there are partly paid up share, then first change them to fully paid-up shares.
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