Bonus Shares under the provision of Co Act, 2013 and Companies (Share Capital and Debentures) Rules 2014 by CS Aakanchha Vyas



Bonus is a gift given by the company to its shareholder. Bonus issue is a way through which company gives a free offer of shares to its existing shareholders in proportion to their holdings. It is a further issue of share by a company to its existing shareholders without receipt of any consideration.

The basic principal behind bonus issue is that the total number of shares increases with the constant ratio of number of shares held to the number of shares outstanding. For instance, if investor “A” holds 200 shares of a company and a company declares 4:1 bonus that is for every one share he gets 4 shares for free. That is total 800shares for free and his total holding will increase to 1000 shares.

The main reason behind the issue of bonus shares is to encourage retail participation and increase their equity base. When price per share of a company is high it becomes difficult for new investor to buy shares of that particular company. Increase in the number of shares reduces the price per share. But the overall capital remains the same even if bonus share are declared.

  • Issue of bonus shares :-

Issue of bonus shares is governed by the provision of sec 63 along with rule 14 of the companies (share capital and debentures) Rules 2014. In case of listed company it has to comply with the provisions of chapter IX of SEBI (ICDR) regulations 2009.

  • Source of Bonus Share:-

According to the provision of sec 63 a company may issue fully paid up bonus shares to its members, in any manner whatsoever, out of:-

  1. Its free reserves;
  2. The securities premium account;
  3. The capital redemption reserve account.

Issue of bonus shares shall not be made by capitalizing reserves created by the revaluation of assets. The bonus shares shall not be issued in lieu of dividend.

  • Conditions for Issue of Bonus share:-

1)    It is authorized by articles of association;

2)    It has, on the recommendation of the board, been authorized in the general meeting  of the company;

3)    It has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;

4)    It has not defaulted in respect of payment of statutory dues of the employees, such as  contribution to PF, gratuity, and bonus;

5)    The partly paid up shares, if any outstanding on the date of allotment, are made fully paid up;

6)    It complies with such condition as may prescribed.


According to the rule 14 of the companies rules 2014 if once a company announced the decision of its board recommending a bonus issue shall not subsequently withdraw the same.

  • Procedure for issue of bonus share:-

The company shall hold the board meeting and get the following proposal to be approved by board:-

  1. To recommend the bonus issue;
  2. To approve the resolution to be passed at general meeting;
  3. To approve requisite resolution for increase of the capital and consequential alteration of the MOA/AOA (if necessary);
  4. To authorize the bonus issue;
  5. To enable the articles to authorize the issue, if necessary.

Hold the general meeting and get the resolution for issue of bonus shares passed by the members.

After passing special resolution in general meeting the company shall file a form MGT-14 along with fee with the registrar within 30 days of passing special resolution.

File the return of allotment in form PAS-3 along with fee with the registrar within 30 days of allotment.

All share certificates shall be delivered by the company to its shareholders within two months from the date of allotment of bonus issue. The details of allotment of shares intimate to the depository immediately on allotment of such shares.

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