Are you looking to understand the step-by-step process for issuing bonus shares? This comprehensive guide to issuing bonus shares by JSRK & Associates, Practising Company Secretaries, covers all you need to know about the legal framework, requirements, and procedures for issuing bonus shares under the Companies Act, 2013 and SEBI guidelines.
What are Bonus Shares?
Bonus shares are additional shares issued to existing shareholders at no extra cost. They are distributed in proportion to the shares already held by the members, using the company's accumulated reserves.
Legal Provisions Governing Bonus Shares
Companies Act, 2013: Section 63
SEBI (ICDR) Regulations, 2018: Chapter XI
Applicable Rules:
Companies (Share Capital and Debentures) Rules, 2014
Companies (Management and Administration) Rules, 2014
Companies (Prospectus and Allotment of Securities) Rules, 2014
Forms to Be Filed: MGT-1, MGT-14, PAS-3, SH-1
Approvals Required:
Board Meeting Resolution
Shareholders’ Ordinary Resolution
Timeline: 4 to 75 days
Why Issue Bonus Shares?
Issuing bonus shares can enhance shareholder confidence, conserve cash reserves, and make the company’s stock more affordable by adjusting the stock price proportionally.
Pre-requisites for Issuing Bonus Shares
Adequate authorized share capital to accommodate the new shares. If insufficient, amend the Memorandum of Association (MoA).
Bonus shares may be issued from:
Free reserves
Securities premium account
Capital redemption reserve
Prohibited Sources:
Revaluation reserves
Conditions for Issuance:
Authorized by the company’s Articles of Association (AoA).
Board of Directors and shareholders approve the issuance.
No defaults in debt or statutory dues (e.g., PF, gratuity).
No partly paid-up shares at the time of allotment.
Bonus shares cannot substitute for dividends.
Note: In listed companies, promoters and directors must not be categorized as fugitive economic offenders.
Step-by-Step Procedure to Issue Bonus Shares
For Unlisted Companies
Step | Action | Legal Reference |
Board Meeting | Approve bonus issue, fix record date, and schedule General Meeting. Approve draft notice and explanatory statement. | Section 63, Secretarial Standard-1 |
File MGT-14 | File Board resolution with RoC within 30 days. | Companies (Management & Admin) Rules, 2014 |
Publish Notice | Announce book closure/record date in newspapers. Serve notice to shareholders at least 7 days prior. | Section 91(1), Rule 10 |
General Meeting | Obtain shareholder approval via an ordinary resolution. | Sections 63, 96, 100 |
Allot Shares | Conduct Board Meeting for allotment approval. Authorize PAS-3 filing. | Sections 39, 63 |
Update Registers | Update the register of members with allotment details within 7 days. | Section 88, Rule 5 |
File PAS-3 | File return of allotment with RoC within 30 days. | Rule 12 |
RBI Compliance | For foreign allottees, file Form FCGPR with RBI within 30 days. | FEMA Regulations, 2017 |
Issue Certificates | Issue share certificates within 2 months or update depository records for demat shares. | Section 46, 56 |
For Listed Companies
Notify stock exchanges of the Board Meeting agenda at least 2 working days in advance.
Approve the bonus issue in a Board Meeting and schedule a General Meeting.
File PAS-3 with RoC for allotment details.
Obtain approvals from stock exchanges for listing and trading.
Timelines for Compliance
Event | Maximum Duration | Minimum Duration |
Board Meeting to General Meeting | 8-10 days | 1 day |
General Meeting to Allotment | 23-25 days | 1 day |
Filing of Return of Allotment | 30 days | 1 day |
Documents Required
Certified resolutions (Board and General Meetings)
List of allottees with allotment details for PAS-3 filing
Foreign Investment Certificates (FIRC) for RBI compliance
Optimize Your Compliance with JSRK & Associates
Navigating the bonus share issuance process can be complex. Partner with JSRK & Associates, a Practising Company Secretary firm, to ensure seamless compliance and professional guidance.
Contact us today!
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