• Meaning and its Feature

1. Bonus shares are issued free of cost
2. It is issued to current shareholders in proportion of their holding. For e.g. if it issued in 2:5 ratio, it means for every 5 shares held, they will get 2 bonus shares
3. It is mandatorily to be issued as fully paid up shares
4. It is non-taxable income
5. It increases the Return on Investment of shareholders
6. Paid up share capital increases with issue of bonus shares

• Governing Acts and Rules

1. Section 63 of Companies Act, 2013
2. Rule 14 of the Companies (Share Capital and Debenture) Rules, 2014
3. Chapter XI of the SEBI (ICDR) Regulations, 2018 and SEBI (LODR) Regulation, 2015, if it is a Listed Company

• Sources for issue of Bonus shares

1. Free Reserves
2. Securities Premium Account
3. Capital Redemption Reserve Account

Note :- Revaluation of assets reserve is excluded for the above purpose

• Conditions for issue of Bonus shares

1. It is authorize by its articles, if not then alter it with proper procedure
2. It has not defaulted in payment of interest or principal of fixed deposits or any debt securities
3. It has defaulted in payment of any of the statutory dues of the employees
4. If any partly paid up shares are outstanding, then it is made fully paid on/before date of allotment
5. It has been authorize by the shareholders in the General meeting
6.  It shall not issue Bonus shares in place of dividend
7. It has made the reservation  of equity shares of same class in the favour of the holders of outstanding compulsorily convertible debt instruments if any
8.  If authorize capital is not enough then alter the MOA with proper procedure
9. Permission of RBI under section 6(3)(b) of FEMA, 1999 to allot shares to Non-resident Indians if such issue do not fall under automatic route

Procedure for issue of Bonus Shares

• Call Board meeting for the proposed issue of Bonus shares and keeping in mind the following important points given below

1.  To pass the Board resolution for approving the bonus issue
2.  To fix the ratio in which bonus shares to be issued
3.  To authorize Company Secretary or any Director to take necessary steps
4.  Fix the date, time, place and venue for the General Meeting or EGM

• File eform MGT-14 with ROC Board Resolution of issue of shares within 30 days of passing of such resolution

• Call General Meeting and pass the Ordinary Resolution for such issue

• Call the Board Meeting and pass  the resolution for allotment of shares

• File eform PAS-3 with ROC within 30 days of passing of resolution for allotment along with following attachments

1.  Ordinary Resolution for Bonus issue of shares
2.  Board Resolution for allotment of shares
3.  List of allottees and number of securities allotted to each of the allottees
4.  Issue share certificate to the shareholders within 2 months from the date of allotment

Note:

• In case of Listed entity, give prior intimation to stock exchange at least 2 working  in advance of the date of Board Meeting
• If the company does not need approval from the shareholders for the capitalization of profits or reserves for Bonus issue, then it must implement Bonus issue within 15 days from the date of approval of issue by Board of Directors
• If the company need approval from the shareholders for the capitalization of profits or reserves for Bonus issue, then it must implement Bonus issue within 2 months from the date of approval of issue by Board of Directors
• Once the decision for issue is announced, the issue cannot be withdrawn

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