|New Guidelines on Bonus Issue
|A company, instead of paying cash dividend, may capitalize its profits by issuing bonus shares to its existing shareholders out of its undistributed profits. It is called bonus dividend and such shares are called Bonus shares.
A company may apply such bonus in making the partly paid up shares
fully paid up without asking for cash from the shareholders.
Generally, a company issues bonus shares when it has sufficient
Reserves and surplus but no cash to pay off dividend.
company Law restricts the issue of bonus shares bu imposing the
following conditions to be compiled with by the company:-
The Article of Association permit the issue of Bonus Shares.
(ii) Such shares can be issued only out of;
Accumulated Profits' or 'Share Premium Account' or 'capital
Redemption Reserve Account'.
(iii) Permission of
the Controller of Capital Issues has been obtained irrespective of
the amount Involved.
(iv) The proposal of the Board
of Directors had been duly approved by the shareholders in the
The company shall file a return stating
the number and nominal amount of bonus shares issued together with
the name and addresses of the allottees and a copy of resolution
authorizing such issue within 30 days from the date of allotment.