Bonus issue

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 March 2012 Dear friends,

The SEBI laws explicitly provide for issue of bonus shares.

My query is that whether a listed Indian Company can make a bonus issue of convertible warrants?

Thanking in anticipation.

Ankur Garg

Ankur Garg (Expert)
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17 March 2012 No i don't think it is possible.
Reserves can be capitalize for fully paid securities.

I this regard kindly check the provisions of your AOA.

Rgds

Ankur Garg

Ankur Garg (Expert)
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17 March 2012 Also read the text below for better understanding:

Hi,

The Companies Act, 1956 does not contain any provisions dealing with bonus shares. Section 205(3) of the Companies Act, 1956 there is no prohibition on a company to capitalise its profits or reserves 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.

You need to check whether your Articles of Association contains any restriction on capitalization of profits or reserves for issuing fully paid up bonus shares.

Regulations 96 & 97 of Table A to Schedule I of the Companies Act, 1956 contain provisions relating to capitalisation of profits and reserves of the company. As per these regulations the proposal to issue bonus shares has to be approved by the shareholders of the company in general meeting upon recommendation by the Board of Directors of the company However if these regulations have been excluded from the Articles of Association of the company then it shall be sufficient if the Board approves the bonus issue.

To conclude if your AOA required obtaining shareholders approval then you need to pass Ordinary Resolution and file form 23 along with form 2 for allotment otherwise it shall be sufficient to pass Board resolution for allotment of bonus shares.

Best Regards

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Querist : Anonymous

Querist : Anonymous (Querist)

17 March 2012 Thanks Mr. Anku.

So that means that in accordance with the provisions of AOA, Company can only issue bonus shares and not convertible securities.

Querist : Anonymous

Querist : Anonymous (Querist)

17 March 2012 Also, you say that porofits can be capitalised forr fully paid-up securities. What if these convertible warrants are convertible into fuly paid-up shares say after 1 year or so.

Ankur Garg

Ankur Garg (Expert)
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17 March 2012 Yes…I think so.
I would also advise you to have a direct chat with the STX officials.

Querist : Anonymous

Querist : Anonymous (Querist)

17 March 2012 I also have another query regarding the condition for conversion of these warrants...

Can a condition like this that the warrants will be converted into fully paid-up shares only for those share/ warrant holders who have held their shares for a period of 1 year from now. If a particular shareholder sells his shares in between, he will also lose the right of getting his warrants converted into equity shares.

Plz do reply..

Ankur Garg

Ankur Garg (Expert)
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17 March 2012 No you cannot put restriction. Kindly refer ICDR guidelines for the same i.e. preferential issue.

Thanks

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Querist : Anonymous

Querist : Anonymous (Querist)

17 March 2012 So the restrictions are in the case of preferential issue... I am talking about bonus issue of warrants

In case of preferential issue we issue warrants to some selected persons, but in bonus issue, warrants will be issued to all the shareholders as on record date.

So whether such type of condition be imposed??