To_the_point (IPCC NOV 10) (125 Points)
22 May 2010Seniors please resolve this contradiction
'Corporate Accounting' By P C Tulsian mentions that "No Bonus issue shall be made within 12 months of public/rights issue"
But in Feb 2008 Reliance Power declared bonus issue within 2 months.
What am I missing ?
Please help.
CA Dhiraj Ramchandani
(CA, M. com)
(10823 Points)
Replied 22 May 2010
Hi a bonus issue can be made within one year... It is not restriceted...
The only restriction is only that such issue should be from free reserves...
Now, the obvious free reserves within one year can be the SECURITIES PREMIUM (which was there in case of RELIANCE POWER, u remembered??).... So, in that case too, the company issued the bonus shares utilising its securties premium only, which was never disallowed....
To_the_point
(IPCC NOV 10)
(125 Points)
Replied 22 May 2010
thanx but
Does it mean there is error in the book (P C TULSIAN) ?
CA Dhiraj Ramchandani
(CA, M. com)
(10823 Points)
Replied 22 May 2010
No no no...
Look, hiding and lying are different things.....
P C Tulsian (i've not referred so far, so dont know) may not content this clause of issuing bonus issue from free reserves is allowed in first year too.... That it, but at the same time it doesn't even deny the fact... [The fact prevails that in normal circumstances, a company cannot issue bonus or sweat equity shares in its first year]....
CA Dhiraj Ramchandani
(CA, M. com)
(10823 Points)
Replied 22 May 2010
Look, i dont want to confuse u..
Suppose, if a company comes with an IPO at its face value... then it wont have any free reserves with it in the very first year... So, in such case, a company cannot issue bonus shares in its first year..
So, on an general basis, its disallowed, but if any company has excess securities premium, it can issue bonus shares like RPOWER did
Lakshmi
(Student)
(1836 Points)
Replied 25 May 2010
Issue of bonus shares
Bonus shares are issued by converting the reserves of the company into share capital. It is nothing but capitalization of the reserves of the company. There are some conditions which need to be satisfied before Bonus shares:
1) Bonus shares can be issued by a company only if the Articles of Association of the company authorizes a bonus issue. Where there is no provision in this regard in the articles, they must be amended by passing special resolution act at the general meeting of the company.
2) It must be sanctioned by shareholders in general meeting on recommendations of BOD of company.
3) Guidelines issue by SEBI must be complied with. Care must be taken that issue of bonus shares does not lead to total share capital in excess of the authorized share capital. Otherwise, the authorized capital must be increased by amending the capital clause of the Memorandum of association. If the company has availed of any loan from the financial institutions, prior permission is to be obtained from the institutions for issue of bonus shares. If the company is listed on the stock exchange, the stock exchange must be informed of the decision of the board to issue bonus shares immediately after the board meeting. Where the bonus shares are to be issued to the non-resident members, prior consent of the Reserve Bank should be obtained.
Only fully paid up bonus share can be issued. Partly paid up bonus shares cannot be issued since the shareholders become liable to pay the uncalled amount on those shares.
It is important to note here that Issue of bonus shares does not entail release of company’s assets. When bonus shares are issued/credited as fully paid up out of capitalized accumulated profits, there is distribution of capitalized accumulated profits but such distribution does not entail release of assets of the company.
Bonus Issue & SEBI Guidelines
The SEBI has issued guidelines for Bonus issue which are contained in Chapter XV of SEBI( Disclosure & Investor Protection) Guidelines, 2000. A company issuing Bonus Shares should ensure that the issue is in conformity with the guidelines for bonus issue laid down by SEBI (Disclosure & Investor Protection) Guidelines, 2000. It is a detailed guideline which talks about that the bonus issue has to be made out of free reserves, the reserves by revaluation should not be capitalized. Bonus issue should not be made in lieu of dividend. There should be no default in respect to fixed deposits. Bonus issue should be made within 6 month from date of approval. This is not exhaustive but a lot of things are more in the guidelines regarding this.
To_the_point
(IPCC NOV 10)
(125 Points)
Replied 25 May 2010
Thanx Lakshmi but the problem is this...
..... "As per SEBI guidelines a company cant issue bonus shares within 12 months of a public issue" { as quoted in 'Corporate Accounting' by P C TULSIAN } BUT in Feb 2008 Reliance Power Ltd.issued bonus shares in less than 2 months after IPO.
NOW, How do we explain this ?
Lakshmi
(Student)
(1836 Points)
Replied 25 May 2010
After referring many books & visiting SEBI website I did'nt notice such a statement anywhere.The only condition is after approval the issue must be done within 6 months,otherwise there is no condition to issue for shares. if there is such a situation Reliance Power Ltd.must not have issued and if it is there it must be in the news of contradiction.
So now I think my explanation would be purpose served !!!!!
Lakshmi
(Student)
(1836 Points)
Replied 25 May 2010
In my opinon they must be quoting this "As per SEBI guidelines a company cant issue bonus shares within 12 months of a public issue" { as quoted in 'Corporate Accounting' by P C TULSIAN }bcoz if the co. is newly started one it may not have sufficient free reserves through which bonus share is issued .
Here Reliance Power Ltd is not in such a condition that might be the reason for there issue (MAY BE)
Lakshmi
(Student)
(1836 Points)
Replied 27 May 2010
Issue and allotment of Bonus Shares
Subsequent to the closing of the Initial Public Offering (IPO) of the Company, the global and Indian equity markets suffered an extraordinary meltdown. In line with the global trend, the Company’s share price had also closed below the IPO price after listing on February 11, 2008. Equity shares, by their very nature, are risk-bearing instruments and there is no obligation on behalf of any issuer to insure investors against possible losses. However, in keeping with the Reliance ADA Group’s fundamental and over-riding philosophy of creating value for genuine long term investors, the board of directors of the Company deemed appropriate as one-time measure to reduce the effective cost of acquisition of the Company’s shares below the IPO price by issue of bonus shares.Accordingly, the board had recommended issue of bonus shares to all the shareholders of the Company under public category in the ratio of three new fully paid-up equity shares of Rs 10 each for every five existing fully paid-up equity shares of Rs 10 each held. The Promoters of the
Company viz. AAA Project Ventures Private Limited (AAA) and Reliance Infrastructure Limited (RInfra), who held 45 per cent each of the equity shares of the Company
waived their entitlement to receive the bonus shares. Besides, in order to ensure that the holding of RInfra is not diluted, AAA undertook to gift 6.15 crore shares of the
Company out of its holding to RInfra. The members through Postal Ballot approved the proposal on April 21, 2008, for issue and allotment of bonus equity shares in the proportion of three new fully paid-up equity shares of Rs 10 each for every five fully paid-up equity
shares of Rs 10 each held as on the Record Date. Pursuant to approval of the members, the Company issued and allotted 13.68 crore equity shares of Rs 10 each aggregating Rs 136.80 crore as bonus shares credited as fully paid up by capitalisation of the sum standing to the credit of the Securities Premium Account to all members (other than the Promoters) of the Company, holding equity shares of Rs 10 each of the Company at the close of business hours on June 2, 2008, being the date prior to the book closure from June 3, 2008 to June 5, 2008 (both days inclusive), notified by the Board of Directors for this purpose, in the ratio of three new fully paid-up equity shares of Rs 10 each for every five fully paid up equity
shares of Rs 10 each held.
No rules are applicable in such a situation (extra ordinary)
| Originally posted by : Lakshmi | ||
 |
Issue of bonus shares Bonus shares are issued by converting the reserves of the company into share capital. It is nothing but capitalization of the reserves of the company. There are some conditions which need to be satisfied before Bonus shares: 1) Bonus shares can be issued by a company only if the Articles of Association of the company authorizes a bonus issue. Where there is no provision in this regard in the articles, they must be amended by passing special resolution act at the general meeting of the company. 2) It must be sanctioned by shareholders in general meeting on recommendations of BOD of company. 3) Guidelines issue by SEBI must be complied with. Care must be taken that issue of bonus shares does not lead to total share capital in excess of the authorized share capital. Otherwise, the authorized capital must be increased by amending the capital clause of the Memorandum of association. If the company has availed of any loan from the financial institutions, prior permission is to be obtained from the institutions for issue of bonus shares. If the company is listed on the stock exchange, the stock exchange must be informed of the decision of the board to issue bonus shares immediately after the board meeting. Where the bonus shares are to be issued to the non-resident members, prior consent of the Reserve Bank should be obtained. Only fully paid up bonus share can be issued. Partly paid up bonus shares cannot be issued since the shareholders become liable to pay the uncalled amount on those shares. It is important to note here that Issue of bonus shares does not entail release of company’s assets. When bonus shares are issued/credited as fully paid up out of capitalized accumulated profits, there is distribution of capitalized accumulated profits but such distribution does not entail release of assets of the company. Bonus Issue & SEBI Guidelines The SEBI has issued guidelines for Bonus issue which are contained in Chapter XV of SEBI( Disclosure & Investor Protection) Guidelines, 2000. A company issuing Bonus Shares should ensure that the issue is in conformity with the guidelines for bonus issue laid down by SEBI (Disclosure & Investor Protection) Guidelines, 2000. It is a detailed guideline which talks about that the bonus issue has to be made out of free reserves, the reserves by revaluation should not be capitalized. Bonus issue should not be made in lieu of dividend. There should be no default in respect to fixed deposits. Bonus issue should be made within 6 month from date of approval. This is not exhaustive but a lot of things are more in the guidelines regarding this. |
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VERY WELL EXPLAINED
| Originally posted by : Lakshmi | ||
|
|
Issue of bonus shares Bonus shares are issued by converting the reserves of the company into share capital. It is nothing but capitalization of the reserves of the company. There are some conditions which need to be satisfied before Bonus shares: 1) Bonus shares can be issued by a company only if the Articles of Association of the company authorizes a bonus issue. Where there is no provision in this regard in the articles, they must be amended by passing special resolution act at the general meeting of the company. 2) It must be sanctioned by shareholders in general meeting on recommendations of BOD of company. 3) Guidelines issue by SEBI must be complied with. Care must be taken that issue of bonus shares does not lead to total share capital in excess of the authorized share capital. Otherwise, the authorized capital must be increased by amending the capital clause of the Memorandum of association. If the company has availed of any loan from the financial institutions, prior permission is to be obtained from the institutions for issue of bonus shares. If the company is listed on the stock exchange, the stock exchange must be informed of the decision of the board to issue bonus shares immediately after the board meeting. Where the bonus shares are to be issued to the non-resident members, prior consent of the Reserve Bank should be obtained. Only fully paid up bonus share can be issued. Partly paid up bonus shares cannot be issued since the shareholders become liable to pay the uncalled amount on those shares. It is important to note here that Issue of bonus shares does not entail release of company’s assets. When bonus shares are issued/credited as fully paid up out of capitalized accumulated profits, there is distribution of capitalized accumulated profits but such distribution does not entail release of assets of the company. Bonus Issue & SEBI Guidelines The SEBI has issued guidelines for Bonus issue which are contained in Chapter XV of SEBI( Disclosure & Investor Protection) Guidelines, 2000. A company issuing Bonus Shares should ensure that the issue is in conformity with the guidelines for bonus issue laid down by SEBI (Disclosure & Investor Protection) Guidelines, 2000. It is a detailed guideline which talks about that the bonus issue has to be made out of free reserves, the reserves by revaluation should not be capitalized. Bonus issue should not be made in lieu of dividend. There should be no default in respect to fixed deposits. Bonus issue should be made within 6 month from date of approval. This is not exhaustive but a lot of things are more in the guidelines regarding this. |
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