1.
Bonus issue
An Opportunity to Earn more

2.
Introduction
The literal meaning of “Bonus” is “anything given to any person in addition to
the customary”. Therefore, the Bonus issue of Shares means issue of shares to
the existing shareholders, in proportion to their shareholding, out of free
reserves available with the Company as a reward to their investment in the
Company.
It’s a corporate action recommended by the Board of Directors to convert the
surplus funds available with the Company into share capital by issuing additional
shares to the existing shareholders in proportion to their holding.
Bonus issue is a weapon in the hands of the Company used for self defence to
raise its capital and at the same time to distribute its profits without any
inflow/outflow of cash/ assets.

3.
REASON FOR ISSUE OF BONUS SHARES
1. Adequate Free Reserves: Whenever a Company feels that it has surplus
funds in its reserves and surplus account, instead of declaring dividend, it
may be distributed as Bonus shares among the existing shareholders of the
Company.
2. Capitalisation of Profits: Bonus issue is capitalisation of surplus funds
which was not distributed as dividend by the Company to meet its business
requirements. With passage of time, when this surplus is in abundant, the
Board may decide to convert this surplus into the capital of the Company.
3. Goodwill: Bonus Issue of Shares signifies that Company is stable enough to
meet its business/ investors requirements, resulting in additional demand
for their shares in the market.

4.
REASON FOR ISSUE OF BONUS SHARES
4. No Dilution of stake: Only the existing shareholders are entitled to bonus
shares, resulting in no threat of dilution of stake of shareholders with
increase in number of shares.
5. Liquidity to investment: Post bonus issue, the demand for the shares rises,
and with increase in number of shares, the investment in the Company
becomes readily available and easy to be disposed of.
6. No cash inflow: Bonus issue is only conversion of reserves into share capital.
There is no inflow of cash, as they are for consideration other than cash i.e.
the belief and support received from the investors.
7. No Change in assets: There is no change in total assets of the Company.
Neither cash/assets is received unlike normal issue nor cash is paid out
unlike distribution of profit by way of dividend.

5.
PRE-CONDITIONS FOR ISSUE OF BONUS SHARES
1. Authorisation by Articles: The Company must have authorisation under the
Article of Association, else Board would be required to amend the AOA.
2. Recommendation by Board: Ensure proper compliances of all the laws,
because once the Bonus Shares recommended by the Directors, it can’t be
withdrawn.
3. Authorisation in General Meeting: Bonus Issue shall be authorised by the
members in General Meeting by way of Special Resolution.
4. Conversion of partly - Paid up shares: All partly paid up shares, if any,
should be made fully paid up before the date of allotment of bonus issue.
5. Not in lieu of Dividend: It can’t be made in lieu of dividend.
6. No Default regarding Payment: The Company should not have any default
regarding payment of:
 Principal / interest on Fixed Deposits
 Principal/ interest on Debt Securities
 Statutory dues of employees such as ESI, PF, Gratuity and Bonus etc.

6.
PROCEDURE FOR BONUS ISSUE OF SHARES
1. Conduct Board Meeting: The Board meeting shall be convene to discuss the
Agenda of issue of Bonus Shares and thereafter discussion shall be carried
out for convening of General Meeting (EGM or AGM).
2. Issue notice for General Meeting: The notice shall be issued to the
members by giving 21 days clear notice. Unless it is hold at shorter notice by
taking approval of more than 95% of shareholders entitled to vote at
General Meeting.
3. Convene and hold General Meeting: Convene General meeting as per
provision of Secretarial Standard. Take necessary approval from Members
by passing Special Resolution (consent of atleast 75% of total persons
present).

7.
PROCEDURE FOR BONUS ISSUE OF SHARES
4. File form MGT-14: The Company would be required to file MGT-14 with ROC
within a period of 30 days from the date of passing of special resolution at
General Meeting with the following attachments and along with the fee as
prescribed under the Companies (Registration Offices and Fee) Rules,
• CTC of Notice of General Meeting along with explanatory statement;
• CTC of Resolution passed at the General Meeting;
• Delay beyond 30 days will attract additional fees and beyond 270 days will
attract compounding of offence.
5. Convene Board Meeting for Allotment: Convene another Board Meeting for
allotment of bonus shares and issue of share certificate w.r.t. said allotment.
6. File for PAS-3: The Company would be required to file PAS-3 with ROC within
a period of 30 days from the date of passing of special resolution at General
Meeting with the following attachments and along with the fee as prescribed
under the Companies (Registration Offices and Fee) Rules,
• List of Allottee;
• Certified True Copy of Resolution passed at the Board Meeting;
• Further, delay beyond 30 days will attract payment of additional fees.

8.
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