SEBI guidelines on bonus issue of a company are as follows:

• No bonus shares shall dilute other issues:
• Bonus issue from free reserves:
• Revaluation reserve not eligible:
• Issue in lieu of dividend:
• Partly paid shares not eligible:
• No default of payment of interest, etc.:
• Time within which bonus issue shall be made:

As mentioned above, bonus shares are given to existing shareholders according to their stake in the company. Suppose a shareholder holds 2,000 shares of the company, now when the company issues bonus shares, he will receive 1,000 bonus shares (2,000*½= 1,000).

15.1. 1 The bonus issue shall be made out of free reserves built out of the genuine profits or share premium collected in cash only. 15.1. 2 Reserves created by revaluation of fixed assets are not capitalised.

(3)The listed entity shall ensure the time gap of at least thirty days between two record dates.

Ensure the meeting has the required quorum that is ⅓ rd of the total strength of the Board. Place the board resolution for approving the issue subject to the approval by shareholders in a general meeting by an ordinary resolution. Ensure that the resolution is passed. The ratio of the bonus shares must be fixed.

A bonus issue is a stock dividend, allotted by the company to reward the shareholders. The bonus shares are issued out of the reserves of the company. If the ratio is 2:1 ratio, the existing shareholders get 2 additional shares for every 1 share they hold at no additional cost.

11.3 – Bonus Issue A bonus issue is a stock dividend, allotted by the company to reward the shareholders. The bonus shares are issued out of the reserves of the company. When the bonus shares are issued, the number of shares the shareholder holds will increase, but an investment’s overall value will remain the same.

Definition: Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are company’s accumulated earnings which are not given out in the form of dividends, but are converted into free shares.

A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders. A company may decide to distribute further shares as an alternative to increasing the dividend payout. For example, a company may give one bonus share for every five shares held.

By Issuing bonus shares the number of outstanding shares in the market increases and at the same time value of each share decreases according to the bonus issue ratio but if more demand generates the share price can rise more than the decided post bonus price.

Issue of bonus shares out of pre acquisition profits or reserves will have no effect on the consolidated Balance Sheet. It is so because holding company’s share in pre acquisition profits is reduced on account of issue of bonus shares and on the other hand paid-up value of shares held by holding company increases.

What is the procedure for a bonus issue of shares? 1 Check the company’s articles of association and shareholder’s agreement to confirm if company directors are authorised… 2 Ordinary resolution – Model Article 36 regarding “authority to capitalise” requires directors to seek an ordinary… More

A rights issue increases the subscribed share capital of a company and raises new capital. However, since the total number of shares are increased, this tends to have a dilution effect on the value of the shares. How is a rights issue different from a bonus issue?

Check the Quorum as per Section 174 (1): Quorum for the Meeting of Board of Directors is 1/3rd of total strength of Board or 2 directors, whichever is higher. Place before the Board Resolution for issue of Bonus Shares. Pass Board Resolution for issue of shares. Decide the Ration of Shares offering to share holders.

In case AOA does not authorize to issue Bonus Shares then changes required in the Article of Association. -> Check the availability of resources for the issue of Bonus shares. -> Check Quantum of Bonus shares. -> Check no default in the payment of interest or principal in respect of fixed deposit or debt securities issued by it.