issue of bonus share

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Querist : Anonymous

Querist : Anonymous (Querist)

03 September 2010 closely held public company can issue bonus share from revalution reserve of fixed assets or not.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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03 September 2010 No

Aditya Maheshwari

Aditya Maheshwari (Expert)
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03 September 2010 also visit this link
https://www.caclubindia.com/forum/bonus-issue-for-private-companies-47239.asp

Ankur Garg

Ankur Garg (Expert)
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05 September 2010 Provisions contained in the Companies Act, 1956

The Companies Act, 1956 does not contain a separate set of sections dealing with bonus shares. The Act though has made references to bonus issue/shares in its certain sections. Reference may be made to section 205 of the Companies Act, 1956, which provides that dividend could only be paid out of profits. The proviso to subsection (3) of section 205 permits capitalization of profits or reserve of a company for the purpose of issuing fully paid-up bonus shares or paying up any amount for the time being unpaid on any shares held by the members of the company.

So as per the interpretation the Companies Act permits utilization of reserve arising out of revaluation of assets for purpose of issuing fully paid up bonus shares. But one should also not forget this area is very critical and vulnerable—

1. Capitalization of profits is a process where accumulated profits and reserves are converted into capital.

2. The issue of bonus shares is permitted only out of free reserves (being built up from genuine profits of the entity) or from Share premium account (collected in cash only). It is worth to note here Capital Reserves created on revaluation of assets or without cash accrual should be ignored for the purposes of bonus issues.

Regards,

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