1. Bonus shares are additional shares given to existing shareholders without cost based on their current shareholding. Companies issue bonus shares to capitalize accumulated profits or reserves without needing to pay dividends. 2. Companies may issue bonus shares when they have large reserves but cannot declare dividends due to lack of cash, or to avoid demanding high future dividend rates from shareholders. Bonus shares are issued in a set proportion to existing shares based on a bonus ratio. 3. The process of bonus issue involves board approval, shareholder approval, fixing a record date, allotting shares, and updating shareholder records. Bonus shares benefit both investors through increased holdings and companies through conserving cash.

1. Bonus Issue
BY APURVA BANDIVADEKAR

2. WHAT IS BONUS ISSUE?
 Bonus shares are additional shares given to the current shareholders without any
additional cost, based upon the number of shares that a shareholder owns.
 Bonus issue is also called as “ Capitalization of profits” because shares are issued out
of profits or reserves of the company.

3. CIRCUMSTANCES THAT WARRANT BONUS
ISSUE:
1. Accumulated large
reserves:
When a company has
accumulated large reserves
(whether capital or revenue)
and it wants to capitalize
these reserves by issuing
bonus shares.
2. Not in a position to
declare dividend:
Sometimes a company
cannot pay dividend in cash
due to shortage of liquid
funds, viz., cash, in spite of
earning a large amount of
profit for a particular period.
3.Higher rate of dividend
is not advisable:
Because shareholders will
demand the same rate of
dividend in future, which the
directors may not be able to
give.

4. BONUS SHARES CALCULATION:
 These shares are issued in a certain proportion to the existing holding.
 If you hold 100 shares of a company and a 2:1 bonus offer is declared, you get 200
shares free. That means your total holding of shares in that company will now be 300
instead of 100 at no cost to you.

5. RECORD DATE:
 Record date is a cut-off date set by the company.
 The record date is set by the company so that they can find the eligible shareholders and distribute
bonus shares to them.
 After the announcement of the bonus but before the record date, the shares are referred to as cum-
bonus.
 After the record date, when the bonus has been given effect, the shares become ex-bonus.

6. GOVERNING ACTS AND RULES
 In case of Unlisted Companies:
1. Section 63 of Companies Act, 2013 and
2. Rule 14 of Companies (Share Capital and Debentures) Rules, 2014.
 In case of Listed Companies:
Chapter XI of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

7. TYPES OF BONUS ISSUE:
 Fully paid
When bonus shares are distributed free of cost in proportion of holding, it is called Fully Paid
Bonus Shares.
 Partly paid
When bonus is applied for converting partly paid shares into fully paid shares, it is called Partly
Paid-up Bonus Shares.

8. SOURCES OF BONUS ISSUE:
 Free reserves;
 Securities premium account; or
 Capital redemption reserve account

9. CONDITIONS FOR ISSUE OF BONUS
SHARES:
 It should be authorized by the Articles of Association of the Company
 On the recommendation of the Board, the bonus issue must be approved by the members in General
Meeting.
 No default in respect of deposit/debentures or statutory dues of employees
 Any outstanding partly paid up shares shall be made fully paid up.
 In accordance with SEBI (ICDR) Regulations, An issuer shall make a bonus issue only if it has made
reservation of equity shares in favour of the holders of fully or partly convertible debentures if any, in
proportion to the convertible part and the shares so reserved shall be issued at the time of conversion.
 The company which has once announced the decision of its Board recommending a bonus issue, shall
not subsequently withdraw the same [Rule 14 of Companies (Share Capital and Debentures) Rules,
2014].

10. 1.
• Hold a Board Meeting:
• For Recommending Issue of Bonus shares. b) To fix the ratio in which bonus shares are to be issued. c) To fix the record
date d) For Fixing the Date of General Meeting for seeking the consent of the members
2.
• File a copy of Board Resolution in MGT-14 with ROC within 30 days of the date of Board Meeting (In case of Public Company).
3.
• Hold the General Meeting: To
approve the bonus issue by passing ordinary resolution and to authorize the Board of Directors to allot bonus shares.
4.
• Hold the BM
• To approve the allotment of Bonus shares
5.
• File return of allotment in Form. PAS-3 with ROC within 30 days of allotment of securities.
6.
• If shares are held in physical form: Issue share certificates in SH-1 within two months from the date of allotment
• If shares are held in demat form: Intimate the details of allotment to the Depository immediately on allotment
PROCEDURE:

11. ADVANTAGES OF BONUS SHARES FROM
INVESTOR’S POINT OF VIEW
 The investor doesn’t need to pay any tax upon receiving the bonus shares
 Shareholders, if they so desire, can convert the shares into cash by disposing of the same at a higher
price.
 If partly paid shares are converted into fully paid by issuing bonus, the shareholders need not pay a
further sum for the purpose. On the other hand, their shares become fully paid up.
 It is specifically beneficial for the investors who believe in the long-term story of the company and want
to increase their investment in the same.

12. ADVANTAGES FROM THE VIEWPOINT OF
THE COMPANY:
 Issue of bonus shares is an inexpensive mode of raising capital by which the cash resources of
company are conserved because in the case of bonus shares, there is no payout (cash outflow), and
it is just a book entry where Reserves are capitalized.
 Bonus issues are given to shareholders when companies are short of cash and shareholders expect a
regular income. Shareholders may sell the bonus shares and meet their liquidity needs.
 The Increase in the issued share capital increases the perception of company’s size.

13. OTHER ASPECTS TO CONSIDER:
 FEMA provisions and RBI guidelines are to be adhered to in issuance of Bonus Shares to
Non-Resident Indians. The Issue of such shares to persons outside India has to be reported in
Form FCGPR within 30 days from the date of issue of shares.
 Listing Obligations
1. As per Regulation 29 of the Listing Regulations 2015, the listed company needs to give prior
notice to Stock Exchanges about the Board Meeting where the proposal for issue of Bonus
shares is part of the Agenda.
2. Also, as per Regulation 42, the listed entity needs to intimate the record date of issue of Bonus
shares to the Stock Exchanges, at least 5 days before bonus is declared.
 Tax aspects

14. THANK YOU