Issue of Bonus Shares
This query is : Resolved
25 April 2008
Hi, Dears, one of my clien wants to capitalise the profit by issue of Bonus shares. Since the provisions of section 81 are not applicabe in a case of pvt co.I just want to know that whether registeration of resolution passed in the meetinn of shareholders by filing of form-23 is necessary , in a case of privete co, or just filing of form-2 is sufficent compliance with the company act.
25 April 2008
MS.RADHIKA C.S ON 19/04/08 HAS PROVIEDED IN CA CLUB FORUM THE FOLLOWING PROCEDURE FOR ISSUE OF BONUS SHARES.THE SAME IS REPRODUCED FOR YOUR USE.
COURTESY:MS.RADHIKA-C.S
VERIFY WHETHER THE COMPANY IS ELIGIBLE TO ISSUE BONUS SHARES
VERIFY WHETHER THERE IS ADEQUATE UN-ISSUED EQUITY CAPITAL IN THE AUTHORIZED CAPITAL
DETERMINE THE TERMS AND CONDITIONS OF BONUS ISSUE
CONVENE BOARD MEETING - PASS BOARD RESOLUTION
GIVE NOTICE OF EXTRAORDINARY GENERAL MEETING
PASS ORDINARY RESOLUTION IN THE EXTRAORDINARY GENERAL MEETING
CONVENE BOARD MEETING --MAKE ALLOTMENT OF SHARES
FILE RETURN OF ALLOTMENT
ALL SHARE CERTIFICATES SHALL BE DELIVERED TO THE SHAREHOLDERS WITHIN 3 MONTHS FROM THE DATE OF ALLOTMENT OF BONUS SHARES.
VERIFY WHETHER THE COMPANY IS ELIGIBLE TO ISSUE BONUS SHARES
Issue of bonus share is a common feature and it takes place when the company accumulates a large surplus. This surplus is converted into capital and divided among members in proportion to their rights as fully paid bonus shares. Bonus issue is also known as capitalisation issue as the purpose behind this is to capitalise profits which are available in the hands of the company after the distribution of profits as dividends to its shareholders.
The Companies Act, 1956 does not contain any provisions dealing with bonus shares, though it has made references to bonus issue in certain sections. 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.
Check whether the Articles of Association of the company contains any restriction on capitalisation of profits or reserves for issuing fully paid up bonus shares.
Regulations 96 & 97 of Table A to Schedule I of the Companies Acty, 1956 contain provisions relating to capitalisation of profits and reserves of the company. According to these regulations only the share premium account and the capital redemption reserve account shall be applied in the paying up of unissued shares to be issued to members of the company as fully paid bonus shares. Also 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.
SO AS PER YOUR ARTICLE IF SHAREHOLDER RESOLUTION IS NEEDED,THEN YOU NEED TO PASS THE SAME AND FILE FORM 23 .
FOLLOW THE ABOVE PROCEDURE.
R.V.RAO
MS.RADHIKA C.S ON 19/04/08 HAS PROVIEDED IN CA CLUB FORUM THE FOLLOWING PROCEDURE FOR ISSUE OF BONUS SHARES.THE SAME IS REPRODUCED FOR YOUR USE.
COURTESY:MS.RADHIKA-C.S
VERIFY WHETHER THE COMPANY IS ELIGIBLE TO ISSUE BONUS SHARES
VERIFY WHETHER THERE IS ADEQUATE UN-ISSUED EQUITY CAPITAL IN THE AUTHORIZED CAPITAL
DETERMINE THE TERMS AND CONDITIONS OF BONUS ISSUE
CONVENE BOARD MEETING - PASS BOARD RESOLUTION
GIVE NOTICE OF EXTRAORDINARY GENERAL MEETING
PASS ORDINARY RESOLUTION IN THE EXTRAORDINARY GENERAL MEETING
CONVENE BOARD MEETING --MAKE ALLOTMENT OF SHARES
FILE RETURN OF ALLOTMENT
ALL SHARE CERTIFICATES SHALL BE DELIVERED TO THE SHAREHOLDERS WITHIN 3 MONTHS FROM THE DATE OF ALLOTMENT OF BONUS SHARES.
VERIFY WHETHER THE COMPANY IS ELIGIBLE TO ISSUE BONUS SHARES
Issue of bonus share is a common feature and it takes place when the company accumulates a large surplus. This surplus is converted into capital and divided among members in proportion to their rights as fully paid bonus shares. Bonus issue is also known as capitalisation issue as the purpose behind this is to capitalise profits which are available in the hands of the company after the distribution of profits as dividends to its shareholders.
The Companies Act, 1956 does not contain any provisions dealing with bonus shares, though it has made references to bonus issue in certain sections. 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.
Check whether the Articles of Association of the company contains any restriction on capitalisation of profits or reserves for issuing fully paid up bonus shares.
Regulations 96 & 97 of Table A to Schedule I of the Companies Acty, 1956 contain provisions relating to capitalisation of profits and reserves of the company. According to these regulations only the share premium account and the capital redemption reserve account shall be applied in the paying up of unissued shares to be issued to members of the company as fully paid bonus shares. Also 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.
SO AS PER YOUR ARTICLE IF SHAREHOLDER RESOLUTION IS NEEDED,THEN YOU NEED TO PASS THE SAME AND FILE FORM 23 .
FOLLOW THE ABOVE PROCEDURE.
R.V.RAO
26 April 2008
Hi. Mr Rao. thanks for your immediate reply. One more question, i want to know that is there any restriction on issue of bonus shares out of profit and loss a/c and General reserve, in the case of pvt co?
26 April 2008
SEC 205(3) DOES NOT DIFFERENTIATE BETWEEN PUBLIC OR PVT.LTD.CO.
BUT THE REQUIREMENT WHICH UNIFORMLY APPLIES TO EVERY CO. IS THAT FREE RESERVES BUILT OUT OF GENUINE PROFITS CAN BE USED FOR ISSUE OF FULLY PAID BIONUS SHARES.
BUT THERE SHOULD NOT BE DEFAULT RELATING TO
1. PAYMENT OF INT./PRINCIPAL OF PUBLIC DEPOSITS.OR
2. PAYMENT OF PRINCIPAL /INT . ON DEBENTURES OR
3. PAYMENT OF STATUTORY DUES OF EMPLOYEES.
WITHIN 6 MONTHS OF PASSING BOARD RESOLUTION,BONUS SHARES SHALL BE ISUED.
R.V.RAO
BUT THE REQUIREMENT WHICH UNIFORMLY APPLIES TO EVERY CO. IS THAT FREE RESERVES BUILT OUT OF GENUINE PROFITS CAN BE USED FOR ISSUE OF FULLY PAID BIONUS SHARES.
BUT THERE SHOULD NOT BE DEFAULT RELATING TO
1. PAYMENT OF INT./PRINCIPAL OF PUBLIC DEPOSITS.OR
2. PAYMENT OF PRINCIPAL /INT . ON DEBENTURES OR
3. PAYMENT OF STATUTORY DUES OF EMPLOYEES.
WITHIN 6 MONTHS OF PASSING BOARD RESOLUTION,BONUS SHARES SHALL BE ISUED.
R.V.RAO
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