SEBI Guidelines regarding Issue of bonus shares

Guidelines issued by SEBI regarding Issue of bonus shares

SEBI has announced the following guidelines for the issue of bonus shares.

1. Provision in AOA for issue of Bonus Share

The Articles of the Association of the company should contain provisions for the issue of bonus shares. In the absence of such provisions in the Articles, the company should pass a resolution to that effect at the general body meeting.

2. Issue of Bonus Share

Bonus issue is capitalization of profit. Bonus shares should be issued from free reserves created out of genuine profits or share premiums collected.

3. Capitalization of reserve

Any reserve created through revaluation of fixed assets cannot be capitalized.

4. Issuing Bonus

Bonus shares cannot be issued in lieu of dividend.

5. No Partly paid-up shares

At the time of issuing bonus shares, there should not be partly paid up shares.

6. Payment of statutory dues

There should not be any default on the part of the company in payment of statutory dues to employees such as provident fund, gratuity, bonus, etc. Similarly, there should not be default in payment of interest on fixed deposits or interest or principal amount thereof.

7. Bonus vs Right issue

There should be a gap of at least 12 months between the public or right issue and bonus issue.

8. Proposal of bonus issue

The proposal of bonus issue must be implemented within six months from the date of such approval by the Board of Directors.

9. Resolution

If the issue of bonus shares results in excess of subscribed and issued capital over the authorized capital, a resolution will be passed at the general body meeting for increasing the authorized capital.

10. No bonus issue

No bonus issue will be made if it dilutes the rights of debenture holders whose debentures are convertible fully or partly.