DETAILED NOTE ON BONUS ISSUE DEFINITION

An issue of bonus shares is referred to as a bonus share issue or bonus issue. 

A bonus issue is usually based upon the number of shares that shareholders already own. While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company.                             


 1) The source out of which Bonus Shares shall be issued

The company shall issue fully paid Bonus Shares out of any one of the following source:

·         Free reserves of the company


·         The securities premium account

·         The capital redemption reserve account

 

2.      Source out of which the company shall not utilise for the purpose of issue of Bonus Shares

·         The company shall not issue bonus shares by capitalizing reserve created out revaluation of Asset.

·         The company shall not issue shares in lieu of Dividend.

 

3.      Secretarial formalities to be complied with

      In order to capitalize its profits or reserves for the purpose of issue of bonus shares the

      Company has to comply with the following:

·         The article of association of the company should authorise such issue.

·         The board has to recommend the issue of bonus shares

·         The company in a general meeting should authorise the issue of bonus shares.

 

4.      Company not eligible in issuing bonus shares

·         It has defaulted in repayment of deposit.

·         It has defaulted deposit interest.

·         It has defaulted in debt securities.

·         It has defaulted in respect of payment of statutory dues of the employee’s viz., contribution to Provident Fund, Bonus and Gratuity.

·         Any outstanding partly paid share remains unpaid.

·         Ensure that once the decision of board regarding bonus issue is announced, then it cannot be withdrawn subsequently.

 

 

The provisions and procedures relating to issue of shares through bonus issue are as follows:

 

S. No.

Procedure for Bonus Issue

1.

·         Every unlisted public company making any offer for issue of any securities or buyback of securities or issue of bonus shares or rights offer shall ensure that before making such offer, entire holding of securities of its promotersdirectorskey managerial personnel has been dematrialised in accordance with accordance with provisions of the Depositories Act, 1996 and regulations made thereunder.

·         That any person who subscribe any securities has dematerialized his all existing securities of the company before such subscription.

·         Whether authorized capital is sufficient for issue of bonus shares and if authorized capital is not enough, then first alter the capital of company by alteration of capital clause of the memorandum of association.

·         Whether articles of association authorises for issue of shares through bonus issue and if not then alter the articles of association to include the provisions of issue of shares through bonus issue.

2.

Find out availability of resources for issue of bonus shares as fully paid-up bonus shares can be issued to members out of:

Ø  the free reserves

Ø  the securities premium account

Ø  the capital redemption reserve account

Provided that no issue of bonus shares are made by capitalising reserves created by revaluation of assets.

3.

The bonus shares shall not be issued in lieu of dividend. No issue of bonus shares shall be made capitalizing reserves created by the revaluation of assets.

 

Check availability of resources for issue of Bonus shares.

4.

·         Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting.

·         Send notice of board meeting to all the directors

Ø  at least 7 days before the date of board meeting or

Ø  in such manner as prescribed under section 173(3) of the Companies Act, 2013 and clause 1 of the Secretarial Standard-1.

5.

Convene board meeting to pass the following resolution:

·         Recommendation of Issuance of shares through bonus issue.

·         Deciding the ratio of shares to be offered to shareholders.

·         Authorisation to director/company secretary to sign the documents.

·         Fix the day, date, time and venue for calling general meeting.

Approval of notice for calling of general meeting for passing resolution for issuance of bonus shares.

6.

File e-Form MGT-14 with the Registrar of Companies regarding board resolution for issuance of bonus shares in case of public companies as private companies are exempted to file board resolution for issuance of bonus shares.

7.

Prepare draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, by hand/speed post/registered post/courier/e-mail or by any recognised electronic means, for their comment(s).

8.

Send notice of general meeting to all directors, shareholders, auditors, secretarial auditors and Debenture Trustee, if any, of the company at least 21 days before the date of general meeting. However, notice may be given at a shorter period of time if consent in writing is given thereto, by physical or electronic means, by not less than ninety five percent of the members entitled to vote at such meeting in case the matter is considered in Annual General Meeting, however, if the matter is taken in Extra Ordinary General Meeting, then shorter notice of general meeting may be given subject to consent of majority members entitled to vote and who represent not less than ninety-five per cent of such part of the paid-up share capital of the company as gives a right to vote at the meeting.

(However, private companies can opt their own regulations with respect to notice of General Meeting.)

9.

Convene general meeting and pass special resolution for issue of bonus shares. The Act requires about general meeting resolution, but while filing PAS-3 in case of allotment of shares through bonus issue, it requires for SRN of MGT-14 for special resolution, so better to pass special resolution.

10.

Maintain proper record for:

·         Total number of members present at the meeting with their shareholding pattern.

·         Members who voted in favour of the proposed resolutions and number of shares held by them.

·         Members who voted against the proposed resolutions and number of shares held by them.

11.

Prepare draft minutes of shareholders’ meeting and for finalization, send the draft minutes to the chairman of that meeting.

 

12.

File eform MGT-14 with the Registrar of Companies within 30 days of passing of special resolution along with explanatory statement.

13.

·         Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting.

·         Send notice of board meeting to all the directors

Ø  at least 7 days before the date of board meeting or

Ø  in such manner as prescribed under section 173(3) of the Companies Act, 2013 and clause 1 of the Secretarial Standard-1.

14.

Convene board meeting to pass the following resolutions:

·         Allotment of shares.

·         Authorisation for issue of share certificate.

·         Authorisation for making entries in the register of members.

15.

Prepare draft minutes of the board meeting and circulate, within a period of fifteen days from the date of conclusion of that meeting, to all directors, by hand/speed post/registered post/courier/e-mail or by any recognised electronic means, for their comment(s).

16.

Prepare list of allotees for filing with the Registrar of Companies.

17.

File the e-Form PAS-3 along with attachments within 30 days of allotment with the Registrar of Companies.

18.

In case of Private Limited Companies:

·         Prepare share certificate and get them stamped.

·         Issue share certificate to the respective allotees within two months from the date of allotment of shares as per section 46 of the Act and Rule 5 of the Companies (Share Capital and Debentures) Rules, 2014.

·         Please follow procedure for e-stamping of share certificates

19

 

 

 

 

 

 

 

 

 

 

 

In case of Public Limited Companies:

·         Issue letter of allotment to the allotees and ask them to furnish their Demat account details.

·         Prepare Corporate Excel Form in respect of allotment of securities and submit the same to the Depository and to Registrar to the issue of the company.

·         Receive confirmation from the Registrar to the issue that it has credited securities in Demat account of all the allottee within 60 days of allotment.

·         Receive credit advice from the Depository and on the basis of that credit advice, pay stamp duty on the allotted securities.

·         Please follow procedure for payment of stamp duty on the allotted securities

20.

Make necessary entries in register of members within seven days after passing of board resolution for allotment of shares.

21.

Ensure—

·         that every individual who acquires significant beneficial ownership shares after this allotment, has submitted a declaration in Form BEN-1 to the company, within 30 days of acquiring such significant beneficial ownership shares or any changes in such ownership.

·         that if Form BEN-1 is received by the company, Form BEN-2 is filed with the Registrar of Companies within 30 days from the date of receipt of such declaration.

·         that the company has complied with the provisions of the Companies (Significant Beneficial Ownership) Rules, 2018.

 

(Author- Vishal Wason  is a a Fellow Member of the Institute of Company Secretaries of India and Law Graduate. He is Practicing as an Advocate with Hon’ble High Court of Delhi and other district courts including Tribunals. He is having rich experience of more than 8 years (approx) in Company law matters. His core area of practice includes Corporate Laws, ROC matters, Intellectual Property Right (IPR) Laws and liaisoning with ROC, NCLT, Trademark Registry, Regional Director, Official Liquidator, Reserve Bank of India, Ministry of Corporate Affairs and Stock Exchange etc.

With the vast experience in Corporate Sector, he has got in-depth knowledge and experience of Secretarial Audit, Due Diligence, Corporate Drafting, Mergers, Trademark & Copyrights, Joint Venture & Collaborations. He is also handling various litigations including Section 138 case, civil related matters, Property disputes, Criminal matters, Arbitration proceedings, etc.

Disclaimer: The entire content of the note has been prepared in accordance with the applicable laws. The author has taken all the remedial measures to ensure accuracy completeness and reliability of the information provided. The author accepts no accountability identifying with the note. The reader is required to refer the important existing provisions of applicable laws. The reader agrees that information gave in the above note isn't Professional advice and is liable to change without notice by author. The user accepts no accountability for the result of utilization of such data. This note is only for sharing the information for common advantages.

                                      

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