CS DIVESH GOYAL

Practicing Company Secretary

GOYAL DIVESH& ASSOCIATES

Mob: +918130757966
csdiveshgoyal@gmail.com

Impact of the Companies Act- 2013 and Rules on

Bonus issue of shares Section- 63
GOYAL DIVESH & ASSOCIATES, Practicing Company
Secretary
BONUS SHARES,
SECTION-63 OF CA-2013

SERIES
NO- 39

Definition: Bonus shares are additional shares given to the current

shareholders without any additional cost, based upon the number of
shares that a shareholder owns. These are company's accumulated
earnings which are not given out in the form of dividends, but are
converted into free shares.
Bonus shares is a book keeping transaction (because no cash changes
hands), it capitalizes a part of reserves (retained earnings) to bring:
(1) Share capital more in line with the assets employed; and
(2)A high share price back to a more manageable amount, thus
enhancing its market ability. Although the number of shares held by
each shareholder increases, the value of the total shareholding
remains the same as before the bonus issue. Also called scrip issue,
bonus shares, or capitalization issue.
The concept is similar to a rights issue, except that bonus shares are
created by transferring money from a company's reserves into its equity
capital (capitalization of reserves). This is useful for a company that is
already flush with cash and wishes to capitalize some of its liquid assets.
Companies issue bonus shares to encourage retail participation and
increase their equity base. When price per share of a company is high, it
becomes difficult for new investors 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 shares are
declared.

CS DIVESH GOYAL
Practicing Company Secretary
GOYAL DIVESH& ASSOCIATES

Mob: +918130757966
csdiveshgoyal@gmail.com

For example, the company may give one bonus share for every five
shares held. These are companys accumulated earnings which are not
given out in the form of dividends, but are converted into free shares.
There was no specific section under the Companies Act, 1956 dealing
with Bonus Shares that Table A contains provision relating to
capitalization of profits. Companies were following the norms prescribed
by the Controller of Capital issues. Once SEBI came into existence and
controller of Capital issues were abolished, unlisted Private Limited
Companies and Public Limited Companies were free to issue Bonus
Shares if there were sufficient reserves to match the issue of Bonus
Shares.
To bring in sanctity to the Issue of Bonus Shares, The Companies Act,
2013 has introduced Section 63 to deal exclusively with Bonus Shares
Issue of bonus shares is covered under Section 63 of the Companies Act,
2013 read with rule 14 of The Companies (Share Capital and
Debentures) Rules, 2014.
Source for issue of Bonus Shares:
As per Section- 63(1) a company may issue fully paid up bonus shares to
its members out of following:
A. Free reserves.
B. Securities Premium Account.
C. Capital Redemption Reserve Account.
Source from which Bonus Shares cant issue:
A. No issue of bonus shares shall be made capitalizing reserves
created by the revaluation of assets. (Company cant issue Bonus
Shares out of reserve create from revaluation of assets).
B. The Company shall not issue shares in lieu of Dividend.

CS DIVESH GOYAL
Practicing Company Secretary
GOYAL DIVESH& ASSOCIATES

Mob: +918130757966
csdiveshgoyal@gmail.com

PROCEDURE FOR ISSUE OF BONUS SHARES

STEP-I
Call the Board Meeting:

As per Section 173(3): Issue Notice of atleast 7 days for calling
meeting of Board of Directors.
STEP-II
Hold the Board Meeting:

Check the Quorum as per Section 174(1): Quorum for the Meeting of
Board of Directors is 1/3rd of total strength of Board or 2 directors,
whichever is higher.

Place before the Board Resolution for issue of Bonus Shares.

Pass Board Resolution for issue of shares.

Decide the Ration of Shares offering to share holders.

Fixing the date, time, and venue of the general meeting and
authorizing a director or any other person to send the notice for the
same to the members.

Provisions of the Section 101 of the Companies Act 2013 provides for
issue of notice of EGM in writing to below mentions atleast 21 days
before the actual date of the EGM :
 All the Directors.
 Members
 Auditors of Company

The notice shall specify the place, date, day and time of the meeting
and contain a statement on the business to be transacted at the
EGM.

Authorize a director to do all the work relating to issue notice of
right issue.
STEP-III
File MGT-14:

File e-form- MGT-14 with in 30 days of Passing of Board Resolution
for issue of shares.
Attachment:

CS DIVESH GOYAL
Practicing Company Secretary
GOYAL DIVESH& ASSOCIATES

Mob: +918130757966
csdiveshgoyal@gmail.com

Resolution for issue of shares.

STEP-IV
CONVENE A GENERAL MEETING:

Check the Quorum.

Check whether auditor is present, if not. Then Leave of absence is
Granted or Not. (As per Section- 146).

Pass Ordinary Resolution for bonus issue of shares.
STEP-V
Call the Board Meeting: As per Section 173(3): Issue Notice of atleast 7
days for calling meeting of Board of Directors.
Hold the Board Meeting

Pass Board Resolution for allotment of shares.
STEP-VI
Filling of e-Forms
I.

File PAS-3:

File e-form PAS-3 with in 30 days of passing of Board Resolution
for allotment of shares.
Attachment:
Ordinary Resolution for Bonus issue of shares.
Board Resolution for allotment of shares.
List of Allottees. (as per annexure B of PAS-3)- Mentioning
Name, Address, occupation if any and number of securities
allotted to each of the allottees and the list shall be certified
by the signatory of the form pas-3..

STEP-VII
Issue Share Certificates:

Company will issue share certificate to the share holders with in 2
month from the date of allotment of shares.

CS DIVESH GOYAL
Practicing Company Secretary
GOYAL DIVESH& ASSOCIATES

Mob: +918130757966
csdiveshgoyal@gmail.com

CHECKS FOR ISSUE OF BONUS SHARES

 Check whether Authorized capital is sufficient for issue of Bonus
Shares.
If Authorized capital is enough to issue bonus shares then its ok.
If authorized capital is not enough then first alter the Capital of
Company by alteration in MOA. (Procedure is given in my earlier
article).
 Check Provision for Bonus issue in Article of Association of Company.
If AOA authorize to issue Bonus Share then its ok.
If AOA not authorize to issue Bonus Shares then alter the Article of
Association.
 Check availability of resources for issue of Bonus shares.
 Check Quantum of Bonus shares.
 Check no default in payment of interest or principle in respect of fixed
deposit or debt securities issued by it.
 Check no default in payment of statutory dues of the employees, such
as, contribution to provident fund, gratuity and bonus.
 Check is there any partly paid up share on the date of allotment.
If there is no Party paid up shares then its ok.
If there are partly paid up share, then first make them fully paid up
shares.

CONDITIONS FOR ISSUE OF BONUS SHARES

 Articles must contain provision for issue of bonus shares [As per
Section-62(2) (a)].
 Bonus issue must be authorised by the members of the company (by
passing of Ordinary Resolution) on recommendation of Board.
 Company should not have defaulted in payment of interest or
principal in respect of fixed deposits or debt securities issued by it and
no defaulted in respect of the payment of statutory dues of the
employees, such as, contribution to provident fund, gratuity and
bonus.

CS DIVESH GOYAL
Practicing Company Secretary
GOYAL DIVESH& ASSOCIATES

Mob: +918130757966
csdiveshgoyal@gmail.com

(Author CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be
contacted at csdiveshgoyal@gmail.com) Disclaimer: The entire contents of this document have been
prepared on the basis of relevant provisions and as per the information existing at the time of the
preparation. Though utmost efforts has made to provide authentic information, it is suggested that
to have better understanding kindly cross-check the relevant sections, rules under the Companies
Act, 2013. The observations of the author are personal view and the authors do not take
responsibility of the same and this cannot be quoted before any authority without the written

CS Divesh Goyal
GOYAL DIVESH &
ASSOCIATE
Mob: +918130757966