Issue Of Bonus Shares

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Bonus shares are issued to capitalise accumulated profits and to broad base the issued capital structure. It is also opted to increase volumes of shares traded. Bonus shares are important strategy for corporate houses today as it gives a sound health signal.

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Issue Of Bonus Shares:

Issue Of Bonus Shares

Slide 2:

Bonus shares are issued to capitalise accumulated profits and to broad base the issued capital structure. It is also opted to increase volumes of shares traded. Bonus shares are important strategy for corporate houses today as it gives a sound health signal. Bonus shares are additional shares given to the given to the present shareholders with no extra cost, based upon the quantity of shares that a shareholder holds. These are organization's amassed profit which are not given out as profits, but rather are changed over into free shares.

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There are also known as reward shares. For example, if Investor A holds 200 shares of an organization and an organization pronounces 4:1 reward, that is for each one offer, he gets 4 offers for nothing. That is all out 800 shares for nothing and his aggregate holding will increment to 1000 shares.  Organizations issue bonus shares to support retail cooperation and expansion their value base. At the point when cost per offer of an organization is high, it gets to be troublesome for proposed financial investors to purchase shares of that specific organization. Increment in the quantity of shares decreases the cost per offer.

Slide 4:

There are also known as reward shares. For example, if Investor A holds 200 shares of an organization and an organization pronounces 4:1 reward, that is for each one offer, he gets 4 offers for nothing. That is all out 800 shares for nothing and his aggregate holding will increment to 1000 shares. Organizations issue bonus shares to support retail cooperation and expansion their value base. At the point when cost per offer of an organization is high, it gets to be troublesome for proposed financial investors to purchase shares of that specific organization. Increment in the quantity of shares decreases the cost per offer.

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The main reasonable distinction is that a reward issue makes an adjustment in the structure of the organization's shareholders' value. Another contrast between a reward issue and a stock split is that while a stock split ordinarily likewise parts the organization's approved offer capital, the dissemination of reward shares just changes its issued offer capital.   Section 63 deals with issue of Bonus Shares and states that A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of-

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• Its free reserves; • The securities premium account; or • The capital redemption reserve account Provided that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets. It also provides that no company shall capitalise its profits or reserves for the purpose of issuing fully paid up bonus shares under sub section (1 ) unless-

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• It is authorised by its articles; • It has, on the recommendation of the board, been authorised in the general meeting of the company; • It has not defaulted in payment of interest or principle in respect of fixed deposits or debt securities issued by it; • It has not defaulted in respect of the payment of statutory dues of the employees such as, contribution to provident fund, gratuity and bonus; • The partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up; • It complies with such conditions as may be prescribed. (1) The bonus shares shall not be issued in lieu of dividend. To know more about getting a due diligence checklist , be sure to check out this site.

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