- A company may, issue fully-paid bonus shares, if its Articles authorize.
- When company have large amount of distributable profits then a company can capitalize such distributable profits by issuing bonus shares to their existing shareholders.
- Members do not have to pay any amount for bonus shares, that means bonus shares issued for free.
- Bonus shares after allotment to members not taxable in thier hands.
Sources for issue of Bonus shares -
According to section 63(1), a company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of—
(i) its free reserves,
(ii) the securities premium account, or
(iii) the CRR A/c.
Note: No issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.
Terms and Conditions for Issue of Bonus Shares -
As per Section 63 of Companies Act, 2013 read with Rule 14 of Companies (Share Capital and Debentures) Rules, 2014 following are the terms and conditions for issuing bonus share:
(i) Issue of bonus shares shall be authorised by its AOA.
(ii) Issue of bonus shares shall be recommended by board of directors, & authorized by members in general meeting.
(iii) Issueing company has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it.
(iv) Issueing company has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus.
(v) All the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up.
(vi) The bonus shares shall not be issued in lieu of dividend.
(vii) If the company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same.