UNIT 1 –

ISSUE OF BONUS SHARES

Identify the Activity
Introduction to Shares
s
INTRODUCTION TO BONUS SHARES

WHEN THE ADDITIONAL SHARE ARE TO BE

ISSSUED TO THE EXISTING SHAREHOLDERS
WITHOUT RECEIVING ANY PAYMENT FROM
THEM, ITS CALLED AS “ISSUE OF BONUS
SHARES”.

BONUS SHARES ARE ISSUED TO THE EXISTING

SHAREHOLDERS OUT OF THE ACCUMULATED
PROFITS AND RESERVES.

BONUS SHARE ARE ALWAYS FULLY PAID UP.

WHAT IS HAPPENING??
 PROCESS OF BONUS ISSUE
Check if Articles permit the issue of bonus shares. Else, articles
should be amended.

Check whether bonus issue is within limits of authorized share

capital of the company. Else, memorandum and articles have to
be suitably amended.
 PROCEDURE FOR ISSUE
OF BONUS SHARES
STEP-I
Call the Board Meeting:
As per Section 173(3): Issue Notice of atleast 7 days for calling
meeting of Board of Directors.
 STEP-II
Hold the Board Meeting:
• Check the Quorum as per Section 174(1): Quorum for the
Meeting of Board of Directors is 1/3rd of total strength of
Board or 2 directors, whichever is higher.
• Place before the Board Resolution for issue of Bonus Shares.
• Pass Board Resolution for issue of shares.
• Decide the Ration of Shares offering to share holders.
• Fixing the date, time, and venue of the general meeting and
authorizing a director or any other person to send the notice
for the same to the members.
 STEP III
Provisions of the Section 101 of the Companies Act 2013
provides for issue of notice of EGM in writing to below
mentions atleast 21 days before the actual date of the EGM :
All the Directors.
Members
Auditors of Company
The notice shall specify the place, date, day and time of the
meeting and contain a statement on the business to be
transacted at the EGM.
Authorize a director to do all the work relating to issue notice
of right issue.
Board Meeting is to:
• Consider proposal for 'Bonus Issue' and
the proportion in which it should be
issued.
• Fix up the date, time and place of
the AGM to be convened for securing
the approval of the shareholders.
• Approve date of closing the Register of
Members and transfer books.
Issue of Bonus Shares - Sources
According to Section 63 (1) of the Companies Act
2013, a company may issue fully paid bonus
shares to its members out of:
– Its free reserves
– The Securities Premium A/c
– The Capital Redemption Reserve (CRR)
Bonus shares cannot be issued out of revaluation
reserve.

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Sources for issuing fully
paid Bonus Shares
a) The Securities Premium A/c

b) The Capital Redemption Reserve (CRR)

c) Surplus or Profit (unappropriated part)

d) Any type of revenue reserve

e) Development Rebate Reserve

f) Investment Allowance Reserve

g) Debenture Redemption Reserve and so on.

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 Sources for making partly paid
shares as fully paid

a) Surplus or Profit (unappropriated part)

b) Any type of revenue reserve

c) Development Rebate Reserve

d) Investment Allowance Reserve

e) Debenture Redemption Reserve and so on.

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 Conditions for Issue
of Bonus Shares
a) It is authorised by its article.
b) On the recommendation of the Board of directors,
approved by the members in general meeting of the
company.
c) The company has not defaulted in the payment of
interest or principal in respect of FD or debt securities.
d) The company has not defaulted in the payment of
statutory dues of the employees, such as PF, gratuity,
etc.
e) The partly paid shares, if any, outstanding at the time of
allotment, must be made fully paid. 25
 Objectives of
Bonus Issue
a) Expanding the capital base

b) To retain the cash

c) Adds to the reputation or goodwill

d) Leads to more trading and liquidity

e) The paid up capital reflects the actual capital employed

by the company.
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 Advantages of Bonus Issue
– to the Company
a) Retains the cash for business

b) Capital structure becomes more realistic

c) Adds to the reputation or goodwill

d) More security to the creditors

e) Reduces high rate of dividend

f) Reduces the chances of any takeover bid

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 Advantages of Bonus Issue
– to the
Shareholders
a) Number of shares increases

b) Capital gain by selling shares

c) Get back their accumulated profits

d) More security to the creditors

e) Bonus shares cannot be treated as dividend

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 Disadvantages of
Bonus Issue
a) Number of shares increases, so EPS decreases

b) Subject to approval of SEBI

c) Promotes speculation in the shares of the company

d) May adversely affect future investors

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 Distinction
Sl No. Basis

1. Price
b/w Rights Shares

Yes
Bonus Shares

No

2. Partly paid Bonus Shares May be No

3.

4.
and Rights
Minimum Subscription

Separate bank Account

Yes (90% of the issue)

Yes
No

No

5. Shares
Renunciation of shares Yes No

6. Purpose To raise the funds Capitalisation of

profits

7. Cash Bring cash No

8. Provision in the artcles No Yes

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