Bonus share issue

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prathiba (Querist)
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14 March 2013 A private limited company's articles provides for capitalisation of profits by issue of bonus shares. It also states that such issue "may be made to , among and in favour of members or any class of them entitled thereto......"

Accordingly, can issue be done selectively only to some share holders. Further , as per sec.106 of the companies act, rights attached to shares of any class may be varied with consent in writing of 75% majority or with sanction of spl.resolution passed at meeting of the issued share holders of the respective class of shares

Please clarify

Ankur Garg

Ankur Garg (Expert)
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14 March 2013 You have given the reference of section 106, which is w.r.t. class shareholders and their meeting. Are you going to issue bonus shares to a particular class of shareholders like preference shareholders?

Further according to me section 106 is not applicable to equity shareholders.
Instances are there where bonus issue was made to selective shareholders. Just recall the bonus issue of Reliance Power Limited few years ago where CMD Mr. Anil Ambani keep himself away from the bonus issue. This issue was made to compensate the loss faced by shareholders across the country due to the poor listing price of Reliance Power Limited. However it would be better to offer bonus shares to all the shareholders proportionately.

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prathiba

prathiba (Querist)
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14 March 2013 Thanks Ankur sir for the reply. There are only equity share holders in the proposed company. And if there is connivance of the majority shareholders, should there be any problem. The companies act is silent abt selective bonus issue

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Ankur Garg

Ankur Garg (Expert)
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14 March 2013 Section 106 is not available to you. Also go through your AOA for bonus issue provisions. Further bonus issue is not a right issue and you cannot take the plea that section 81 is not applicable to a private company and we are not supposed to offer new shares to existing shareholders.

Silence of law is a big problem. If you do not offer bonus shares to every shareholders, they may question the entire bonus issue.

In the eyes of law if your intentions are genuine, you should offer bonus shares to all and wait for their undertaking that they are not interested in subscribing bonus issue. On the other side if you offer bonus shares to selective shareholders without the knowledge of other eligible shareholders then it would be difficult for you to prove your bonefide intentions.