Write a note on bonus shares ?

What are Bonus Shares ? When they are issued ?

Ans.

BONUS SHARES

Bonus shares are such shares which are issued to existing shareholders f the company when company does not want to distribute dividend out of its reserve funds and profits. If company does not provide dividend out of its profits or reserve funds and issued fully paid up shares in place of dividend, such shares are known as bonus shares. Company takes such step to expand s capital so these shares are also called as capitalization shares. Thus bonus tares are such fully paid up shares which paid dividend in the form of fully paid up shares in stead of cash. It facilitates shareholders more dividend in future.

Bonus shares can be issued out of the following:

1. Amount of share premium,

2. Amount of capital Sinking Fund Account,

3. Amount of fund and existing profits.

Conditions for the Issue of Bonus Shares – Following are the conditions for the issue of bonus shares:

1. Company have should be undistributed reserve in sufficient quantum.

2. Provision for issuance of bonus shares should be made in Articles of Association.

3. A resolution to issue bonus shares should be passed in’ Board meeting.

4. Guidelines issued by the Securities and Exchange Board of India should be followed by the company.

Guidelines Issued by the Securities and Exchange Board of India for the Issue of Bonus Shares – The Securities and Exchange Board of India (SEBI) has issued following guidelines regarding the issue of bonus shares by the companies listed in stock exchanges –

1. Provision for making capitalization of profits and funds should be given in the Articles of Association. If such provision has riot been available in the Articles of Association, provision should be made in the Articles of Association by passing special resolution.

2. If authorized capital of the company is increase if due to capitalization, a resolution should be passed in general meeting.

3. Resolution of issue of bonus should be passed in the ordinary meeting of the company.

4. Bonus shares should be issued after issuing the right issue/public issues.

5. A written statement should be filed with the Securities and Exchange Board of India. It should be shown in such written statement that company has followed guidelines of SEBI.

6. Funds prepared by the revaluation of Ipcal assets cannot be capitalized.

7. Bonus shares can only be issued when existing shares are fully paid.

8. Company failing in making payment of gratuity, provident fund, bonus and other legal liabilities cannot issue bonus shares.

9. Development discount reserve and investment allowance reserve are deemed as free reserve.

10. An application within one month should be filed for obtaining permission to issue bonus shares.