December 19, 2023 at 06:53 AM
In this article, we are going to explore the concept of Bonus Shares and Section 63 of the Companies Act 2013, In which they are being dealt with.
Before understanding the concept of Bonus Shares, Let’s recall about Shares,
A ‘Share’ is a part/share in a company’s capital. Or In other words, A share is a Unit of Company’s common stock and the holder of it is known as Shareholder.
Now, Let’s dive into Bonus Shares. As the name suggests “Bonus”, stands for something in addition to the basic, or a kind of reward. So, when some additional shares are offered/given to existing shareholders is known as issuing of Bonus shares.
According to Section 63 of the Companies Act 2013- Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are the company’s accumulated earnings which are not given out in the form of dividends, but are converted into free shares.
Company can issue fully paid-up bonus shares out of:
1. Free Reserves;
2. Security premium;
3. Capital Redemption Reserve Account
However, the company can’t issue Bonus Share out of revaluation reserve.
Company can issue Bonus Share if:
a. It is authorized by its articles;
b. It’s recommended by the Board and authorized in General Meeting as Ordinary Resolution;
c. It has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus;
d. Partly paid-up shares, if any outstanding on allotment date are made fully paid up;
e. If listed in the company, it shall comply with SEBI Guidelines.
Prior to the issue of bonus shares, there are some conditions that must be ascertained. They are as follows:
The following are the steps to be adhered by the company for the issue of Bonus shares.
3. Circulate draft minutes: The draft minutes must be circulated within the stipulated time to all directors for their comments. For a public company, the board resolution in the form MGT – 14 must be filed in less than 30 days with the Registrar of Companies.
4. Send Notice of General Meeting: The notice for the General Meeting for approving the issue of bonus shares must be sent out to all directors, shareholders, auditors and all members entitled to receive, giving no less than 21 clear days for the same.
5. Convene the General Meeting: The Extraordinary General Meeting must be convened, and the issue of bonus shares must be authorized by passing Ordinary resolution by simple majority as per section 114(1) of the Act and authorize the Board to allow the bonus shares.
6. Convene a Board Meeting: The company must convene a Board Meeting approving the allotment of the bonus shares and follow all the protocols for the same.
7. File Form No. PAS -3: The company must then file the return of allotment in the Form PAS – 3 within 30 days of allotment of securities of the company having a share capital. The attachments required will be as mentioned here below:
8. Issue of share certificates: The company must inform the depository immediately on allotment when the shares are held in DeMat form, if they are held in physical form then the share certificates must be issued within 2 months from the date of allotment.