Bonus Shares

Bonus Shares

Shares issued by the company to their shareholders free of cost based on the number of shares the shareholder owns. Bonus shares are issued by converting the reserves of the company into share capital. It is nothing but capitalisation of reserves of the company. Bonus shares can be issued by the company only if the Articles of Association of the company authorises a bonus issue. Where there is no provision in this regard in the articles, they must be amended by passing special resolution act at the general meeting of the company. Care must be taken that issue of bonus shares does not lead to total share capital in excess of the authorised share capital.

Otherwise, the authorised capital must be increased by amending the capital clause of the Memorandum of Association. If the company has availed of any loan from the financial institutions, prior permission is to be obtained from the institutions for the issue of bonus shares. If the company is listed on the stock exchange, the stock exchange must be informed of the decision of the board meeting. Where the bonus shares are to be issued to the non-resident members, prior consent of the reserve bank should be obtained.