Bonus Issue Companies Act 2013

Introduction

Shareholder investments obtain equity capital for a public limited corporation. As a result, the stockholders want to get their money back. 

The business can declare bonus shares or cash dividends in the same way. Bonus shares are accumulated profits companies gives as free shares to its existing stockholders.

Bonus share issuance under the 2013 Companies Act

In the corporate world, bonus share issuance is a common occurrence. Bonus shares may be issued to owners in proportion to their holdings when the company has a sizable earnings surplus and plans to convert it into share capital.

To capitalize on the company’s reserves or profits, bonus shares are issued. Because these shares are issued upon the capitalization of earnings or reserves, they are sometimes called “Capitalization Shares.” 

Increasing the share capital of the company is the main objective. There is no financial outflow as a result of the bonus share issuance. 

Rule 14 (Companies Share Capital and Debenture) Rules, 2014, Section 63 of the new Companies Act, 2013 covers the issue of bonus shares to shareholders.

Conditions for Bonus Share Issuance

There are specific requirements that must be met before bonus shares are issued. They are listed in the following order:

1. Make that the articles of association permit it; if not, they must be changed in compliance with Section 14 of the Act.
2. Check to see if there is enough authorised capital to issue Bonus shares. If not, the allowed capital must be increased by amending the Memorandum of Association.
3. Shareholders must approve the issue at the general meeting.
4. Verify that the interest and principal on any fixed deposit or debt instrument the company issues are paid on time.
5.  The employer must also ensure that no employee statutory obligations, such as provident fund contributions, bonuses, or gratuities, are not delinquent.
6. Ensure that every share has been paid in full; if not, they must be paid in full.
7. The business needs to make sure all of its resources are available.

Process For Bonus Share Issuance

The steps that the corporation must follow to issue bonus shares are as follows.

Call a Board Meeting

Calling a Board Meeting is the first thing that needs to be done. By Section 173(3) of the Act, notice must be given at least seven days before the board meeting.

After that, the business needs to call a board meeting and set an agenda. The following needs to be made sure of before calling the meeting:

1. Ensure the meeting has the requisite quorum, one-third of the board’s membership.
2. Put the board resolution to approve the issue on the agenda for a general meeting with an ordinary resolution, subject to shareholder approval.
3. Make sure the resolution is approved.
4. It is necessary to fix the bonus share ratio.
5. Establish the general meeting’s date, time, and location and give a director permission to send out notices for it.

Distributing the draft minutes

All directors must get the draft minutes for their feedback within the allotted time. If the company is public, the board resolution in form MGT-14 must be filed with the Registrar of Companies no later than thirty days.

Send Notice of General Meeting

All directors, shareholders, auditors, and members eligible to receive bonus shares must receive notice of the General Meeting to approve the issuance of said shares. The notice must be delivered with at least 21 clear days’ notice.

Call the General Meeting

Under section 114(1) of the Act, the Extraordinary General Meeting must be called, and the Board must be permitted to approve the bonus shares by passing an Ordinary resolution with a simple majority.

Call a Board Meeting

The business must call a board meeting to approve the distribution of bonus shares and review all the necessary procedures.

File Form No. PAS-3

Following the issuance of securities with a share capital, the corporation has thirty days to file the return of allotment in Form PAS-3. The necessary attachments are listed as follows:

1. A duplicate of the Ordinary Resolution approved at the Extraordinary General Assembly.
2. A copy of the board resolution authorising the share distribution.
3. List of allottees with each allottee’s name, address, occupation (if any), and the number of securities allotted to them; the list will be certified by the Form PAS-3 signatory.
4. Any further documents could be relevant.

Issuance of share certificates

Suppose the shares are held in physical form. In that case, the company shall provide the share certificates within two months of the date of allotment, and in the event that the shares are stored in DeMat form, the company shall notify the depository immediately upon allotment.

Conclusion

The 2013 Companies Act governs bonus share issuance to shareholders. The AoA should grant permission to issue it. The Company is unable to cease awarding bonus shares once they are recommended. 

It requires a lot of time and work to issue bonus shares. You can also get in touch with our Lawgical Adda experts if you need help with the process. Our Experts can help you complete your assignment on time and efficiently.

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