Effective ways of growth and cost reduction – Bonus Share issue procedure.
In this article, we will tell you about the procedure of bonus share with some essential key features of bonus shares but before going in deep, we should know about the proper meaning of Bonus Share. Therefore, lets start with the meaning of Bonus Share.
Bonus Share: When a company decides to divide their profit in terms of share instead of dividend or cash among shareholders, these shares are called Bonus Shares. We can also say that the payment of dividend in terms of Share, is called a Bonus Share. The two reasons behind issuing bonus shares are : first one – tax avoidance and Second -they want to increase their share capital. For the Share capital reason, it could be denoted by “Capitalisation of Undistributed Profits”.
Well, after a brief discussion, we should take our next step. Various provisions are included in bonus share, which must be followed by a company.
Let’s take a look:
1.) Article which gives permit to issue Bonus share : Before issuing bonus shares, ensure that the Article of association must be giving permit to issue bonus shares and on the other hand, if not, then it should be suitably amended.
2) Share must be issued within a limited authorised capital: Company should ensure that the bonus shares must be issued within a company’s authorised capital and if not, then the article and memorandum should be suitably amended.
3.) Schedule a meeting of Board of Directors: Meeting of Board of directors for considering three important decisions is a need of the condition .
a) Interpret the proposal of issuing bonus share in the same proportion in which it must be issued.
b) To fix the date, place and time of holding extra ordinary general meeting for getting the approval of shareholders.
c) To fix the date of closing the register of members and transfer books.
4) Give intimation to Stock exchange: If company’s shares are listed on a stock exchange, then after holding the board meeting, send an intimation to exchange about issuing of bonus shares immediately.
5) Issue notices to members: For holding general meeting, issue notices to members along with an explanatory statement.
6) Pass a resolution: To pass a resolution in a general meeting and in the case of special resolution, a copy should be filed within 30 days to registrar.
7) Obtain the permission:
a) Obtain the permission from controller of capital issue for the amount is involved.
b) Obtain permission from stock exchange for the procedure of allotment of shares.
c) Obtain permission from RBI, if the shares are also issued to Non resident indian (NRI),under the Foreign Exchange Management Act (FEMA), 1999.
8) Prepare a sheet: Prepare a Provisional allotment sheet, which is directed with the details of existing and present shareholders and details of bonus share allotted to them.
9) Hold another Board Meeting: To hold another Board meeting for passing an allotment resolution, for passing the provisional allotment sheet and fix the date and time of closing the register of members , one more board meeting is required.
10) Issue a notice in newspaper: To issue a notice in some leading newspapers – regarding closure of the register of members and transfer books for issuing of bonus shares.
11) Issue allotment letters to members: To issue an allotment letter to members with a circular, in which an explanation is written about how the allotment has been made.
12) File the Return of Allotment: To file the “Return of Allotment” within 30 days of allotment with the registrar, where :
a) the nominal amount of shares is allotted,
b) Name, occupations and address of the members,
c) Copy of resolution, which authorised the issue of shares.
13) Entry in the register and prepare certificate: In the end, to make necessary entries in register of members and thereafter prepare a new share certificate and issue to members.