BONUS ISSUE RULES AND PROCEDURES AS PER COMPANIES ACT 2013

BONUS ISSUE RULES AND PROCEDURES AS PER COMPANIES ACT 2013 1. MEANING OF BONUS SHARES:- Bonus Shares refers to a further issue of shares made by a company having share capital to its existing shareholders without receipt of any consideration from the shareholders for issuance of such shares. It is an offer of free additional shares to the existing shareholders in proportion to their existing holdings. The basic principal behind bonus issue is that the total number of shares increases with a constant ratio of number of shares held to the number of shares outstanding. 2. REGULATORY FRAMEWORK FOR ISSUANCE OF BONUS SHARES:- 1.In Case of Unlisted Company:- a- Section 63 of Companies Act 2013 b- Rule 14 of Companies (Share Capital and Debentures Rules 2014) 2-   In Case of Listed Company:- SEBI (ICDR) Regulations, 2009 3.SOURCES FOR ISSUANCE OF BONUS SHARE:- Section 63 provides that a company may issue fully paid-up bonus shares to its members, out of-

1. Its free reserves;
2. The securities premium account; or
3. The capital redemption reserve account.

- Exception: No issue of bonus shares shall be made by capitalizing reserves created by the revaluation of assets. 4. CONDITIONS FOR ISSUE OF BONUS SHARE:- The following conditions must be satisfied before issuing bonus shares:- 1. Issue of Bonus Shares is authorized by its articles 2. Bonus Shares are being issued on the recommendation of the Board and been authorized in the general meeting of the company 3. The Company has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it 4. The company has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus 5. The partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up 6. It complies with such conditions as may be prescribed. 5. RESTRICTIONS ON WITHDRAWAL OF BONUS ISSUE :- Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014 provides that the company which has once announced the decision of its Board recommending a bonus issue shall not subsequently withdraw the same. 6. CHECKLIST FOR ISSUANCE OF BONUS SHARES:- Before issuance of Bonus Shares, followings points must be ensured:- 1- Ensure that whether AOA of the company, authorizes issue of bonus share. If not, then amend the AOA. 2- Ensure that whether the authorized Capital is sufficient to issue Bonus Shares, if it not sufficient then increase authorized capital first. 3- Ensure that bonus issue has been made out of free reserves built out of the genuine profits or securities premium or capital redemption reserve account. 4- Ensure that the company has not defaulted in payment of interest or principal in respect of fixed deposits and or debt securities issued by it or in respect of the payment of statutory dues of the employees such as contribution to provident fund, gratuity, bonus etc. 5- Ensure that reserves created by revaluation of assets are not used for issue of Bonus Shares. 6- Ensure that party paid up shares, if any, are made fully paid-up before the bonus issue is recommended by the Board of directors. 7-Ensure that the bonus issue is not made in lieu of dividend. 7. PROCEDURE FOR ISSUE OF BONUS SHARES:- 1. Issue Notice of Board Meeting at least before 7 days before the date of Board Meeting [Section 173(3)]. 2. In the case of listed entity, give prior intimation to the stock exchange at least two working days in advance of the date of Board Meeting. 3. Hold the Board Meeting and get the following proposal to be approved by the Board:

• To recommend the Bonus Issue
• To Fix Ratio and quantum of Bonus Issue
• To approve the Notice of General Meeting
• To decide the date, Time and Venue of Extra-Ordinary General Meeting
• To authorize any director or Company Secretary for issue of Notice of General Meeting and do all necessary acts for issuance of Bonus Shares.
• Pass Board Resolution (Subject to approval of Members) for Issue of Bonus Shares and Alteration in MOA/AOA, if so required.

4. Issue Notice for calling Extra-Ordinary General Meeting at least 21 clear days before the date of Extra-Ordinary General Meeting. 5. Hold the Extra-Ordinary General Meeting and Pass Ordinary-Resolution for issue of bonus shares. 6. File Form MGT-14 with the Registrar within 30 days of passing of the Ordinary-Resolution. The following documents shall be attached with Form MGT-14:-

• Notice with Explanatory Statements;
• Certified True Copy of All Resolution Passed at Extra-Ordinary General Meeting,
• Certified Copy Altered MOA, if MOA altered
• Certified Copy of Altered AOA, If AOA altered

7. Issue Notice of Board Meeting and hold Board Meeting for passing resolution for Allotment of Bonus Shares. 8. File Form PAS-3 (Return of Allotment) within 30 days of allotment. The following documents shall be attached with form PAS-3:-

• Certified True Copy of Board Resolution
• Certified Copy of Ordinary Resolution passed for issue of Bonus Shares
• List of Allotees, mentioning name, address, Pan Card Number, Number of Shares Allotted.

9. Issue Shares Certificates to all the allottees within two months from the date of allotment of bonus issue. 10. Intimate the details of allotment of shares to the Depository immediately on allotment of such shares. FREQUENTLY ASKED QUESTIONS (FAQ ON BONUS ISSUE) :- Q.1 Can a company issue preference share also under bonus issue or it can issue only equity shares under bonus issue? Ans. The Companies Act, 2013 not specified any specific type of shares under Bonus Issue, Therefore, a company can issue equity as well as preference share under bonus issue. Q.2 What shall be issue price of bonus shares? Ans. Bonus Shares are issued free of cost, so question of issue price does not arise. Q.3 Can company issue Bonus Shares to other than existing shareholders? Ans. No, a company cannot issue Bonus Shares to other than existing shareholders, It can only issue bonus shares to the members/shareholders whose names appear in Register of Members on the record date Q.4 Can a company issue partly paid up Bonus Shares? Ans. No, Bonus Shares shall always be issued fully paid up. Q.5 Can company issue Bonus Shares in different ratio to its existing shareholders? Ans. No, Company cannot issue bonus shares in different ratio, It shall issue bonus shares to the existing shareholders in proportion to their existing holdings. Q.6 Can a company issue Bonus Shares out of reserves created by the revaluation of assets? Ans. Section 63 prohibits that no issue of bonus shares shall be made by capitalizing reserves created by the revaluation of assets. Q.7 Can company once announced the decision of its Board recommending a bonus issue subsequently withdraw the same? Ans Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014 provides that the company which has once announced the decision of its Board recommending a bonus issue shall not subsequently withdraw the same. Q.8 Can a company issue Bonus Shares in lieu of Dividend? Ans. Bonus Issue cannot make in lieu of dividend. Q.9 What are the main sources by which a company can issue Bonus Shares? Ans. Section 63 provides that a company may issue fully paid-up bonus shares to its members, out of -

1. Its free reserves;
2. The securities premium account; or
3. The capital redemption reserve account.

Q.10 If the AOA of a company restricts/prohibits for issuance of Bonus Shares, then how can a company issue Bonus Shares? Ans. In such as case a company can alter its AOA by passing Special Resolution u/s 14 of the Companies Act, 2013. Q.11 If the Partly paid up shares outstanding, then can company allot shares under Bonus Issue? Ans. Company cannot allot shares in such a case. Party paid up shares, if any, are made fully paid-up before the bonus issue is recommended by the Board of directors.