1. Introduction: Instead of distributing complete amount of profit as dividend, the progressive companies keep certain portion of profit as reserve fund. Every year the company adds some amount of profit in reserve fund. After some years, there is a large amount as the reserve fund. With the increase of the reserve fund, the customers and the workers feel that they are exploited by the company. The government and the other competitor companies also keep a watch on the increasing reserve fund. In order to escape from this, the company distributes profit in the form of the bonus share. By issuing the bonus shares, the company satisfies its need of capital by internal sources. In short, bonus share is a proof of the prosperity of the company.
2. What is Bonus Share?: Comp nay Act does not provide any specific definition of bonus share. In general, when company issue additional shares to existing shareholder in proportion to shares held with them. Without any monetary consideration out of its accumulated profit is termed as Bonus share. In other words the bonus share is a share given by the company to its shareholders without any consideration from its, accumulated profit. In a way bonus share is a capitalisation of the reserve fund.
3. From what can be Bonus shares to be given?
(1) From any reserve created out of profit.
(2) From the credit balance of the Profit and Loss Appropriation Account.
(3) From the share premium account only fully paid upshftre can be distributed as Bonus shares.
(4) After the redemption of debentures, the remaining imount of debenture redemption is transferred to General reserve.
(5) Out of the capital gains of the company.
4. Procedure to Issue Bonus Shares:
(1) Article of Association : The company must be authorised its Article of Association to issue Bonus shares.
(2) Resolution : A resolution to that declaration should have been passed in general meeting.
(3) Closing of list of Members : The directors must close thèiist of members to calculate the number of shares receivable by each of the shareholders before calling the shareholder’s meeting.
(4) Members List : After the closing of members list, Secretary prepares the list of members.
(5) Agreement regarding the Declaration of Ownership : These shares are given instead of cash amount, to shareholders for whom an agreement regarding the declaring of ownership is made.
(6) Sanction Letter : After the contract is made, sanctioned letter is prepared and sent to shareholders at their address on particular date.
(7) Registration with Register of Company: A statement regarding the issue of bonus shares to shareholders has to be submitted to the registrar within one month of the declaration.
(8) Guidelines of SEBI : To issue Bonus share and to decide the amount of bonus share, the procedure should be followed in accordance with the guideline of SEBI.