Bonus Share & divident

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Baljinder Singh (Querist)
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12 October 2007 1. What is the criteria for issue of Bonus share by Pvt. Ltd. Co., there is any limit for issue of bonus share.

2. In what circumstance Pvt. Ltd. can company issue divident to share holder. How much % company can issue divident to its shareholder.

Srinath A. N.

Srinath A. N. (Expert)
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13 October 2007 1. When company accumulates a large surplus, it converts this surplus in to capital and divides among the members proportion to their rights. The Articles of Association of the Pvt. Company shall authorise for issue of Bonus Shares. Since Section 81 is not applicable to Pvt. Companies, Articles shall guide for issue of Bonus Shares.

There is no limit for issue of Bonus Shares when caompany is having adequate accumulated profits.

2. Section 205 guides for declaration of dividend. When company is having adequate profit then it can declare dividend. There is no restriction on % of dividend declared out of current year profit (subject to transfering of specified % to general reserve based on % of dividend declared). However, in case of declaration dividend out of reserves, the rate of dividend shall not exceed 10% of average of dividend declared in last five years whichever is less (Declaration of Dividend out of reserves Rules 1975).