Quick Summary
Bonus Shares are additional shares given to existing shareholders free of cost from the company's accumulated profits or reserves.
Bonus Shares are issued by a company to its existing shareholders without any cost in proportion to their current holdings. These are issued from the company's free reserves, securities premium account, or capital redemption reserve.
Purpose
- Capitalize free reserves
- Increase liquidity of shares
- Reduce market price per share (make more affordable)
- Reward shareholders without cash outflow
- Improve company's creditworthiness
Conditions
- Authorized by Articles of Association
- Recommended by Board and approved by shareholders (Ordinary Resolution)
- Company has not defaulted in payment of interest or principal
- All partly paid shares are fully paid-up
- Free reserves or securities premium available
Process
- Check availability of free reserves
- Board Resolution recommending bonus issue
- General Meeting approval (Ordinary Resolution)
- Decide ratio (e.g., 1:1, 2:1)
- Fix record date
- Allot shares and file PAS-3
- Issue share certificates
Key Points
- Free shares to existing shareholders
- Issued from reserves/profits
- No cash payment required
- Proportional to existing holding
- Increases share capital