A bonus issue is a free allotment of shares to the existing shareholders, made by capitalising the company’s reserves. It is governed by Section 63 of the Companies Act, 2013, and the Companies (Share Capital and Debentures) Rules, 2014, and by the SEBI (LODR) Regulations, 2015 for a listed company.
The Section 63 Conditions
Section 63 permits a company to issue fully paid-up bonus shares by capitalising its free reserves, its securities premium account, or its capital redemption reserve account. The bonus issue must be authorised by the articles, and it must be approved by the shareholders in a general meeting by an ordinary resolution, unless the articles require a special resolution.
The company cannot issue bonus shares in lieu of dividend, and it cannot issue bonus shares unless the partly paid shares, if any, have been made fully paid up. The company must not have defaulted in the payment of interest or principal on fixed deposits or debt securities, or in the payment of statutory dues, on the date of the bonus issue.
The Stock Exchange Intimations
A listed company must intimate the stock exchange at least two working days before the board meeting at which the bonus issue is to be considered. After the board meeting, the company must intimate the stock exchange of the outcome, and it must fix the record date in accordance with Regulation 42 of the LODR. The company must also obtain the in-principle approval for the listing of the bonus shares.
The ROC Filings
The company must file Form MGT-14 with the ROC within thirty days of the board resolution and the special resolution, where applicable. It must file Form PAS-3 within thirty days of the allotment, and it must issue the share certificates or credit the shares in dematerialised form within two months of the allotment.
The Accounting and the Tax
The bonus issue is accounted for by transferring the amount from the free reserves or the securities premium account to the share capital account. The bonus shares are not taxable in the hands of the shareholders at the time of the allotment, but the cost of acquisition of the original shares is apportioned between the original shares and the bonus shares for the purpose of the capital gains computation on the subsequent sale.
A technically sound bonus issue is structured to comply with the Section 63 conditions, the stock exchange timeline, and the ROC filings.
Call to Action
Anuj Desai & Associates advises listed companies on bonus issues—from the Section 63 conditions and the stock exchange intimations to the record date, the MGT-14 and PAS-3 filings, and the listing formalities. If you are planning a bonus issue, we can help you complete the process.
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