B Com Exam>B Com Notes>Advanced Corporate Accounting>SEBI Guidelines for Issue of Bonus Shares - Advanced Corporate Accounting
SEBI guidelines on bonus issue of a company are as follows:
1. No bonus shares shall dilute other issues:
Issue of bonus shares shall not be made pending conversion of fully convertible debentures or partly convertible debentures unless sufficient number of shares is reserved for allotment to the holders of the said FCDs or PCDs after conversion.
2.Bonus issue from free reserves:
Bonus shares can be issued only out of free reserves built out of genuine revenue profits or share premium collected in cash.
3.Revaluation reserve not eligible:
Reserve created by revaluation of assets cannot be capitalized for issue of bonus shares.
4.Issue in lieu of dividend:
Bonus issue shall not be made in lieu of dividend.
5.Partly paid shares not eligible:
Partly paid shares, if any, will not be eligible for bonus shares. Such partly paid shares, if any, must be made fully paid before a bonus issue is contemplated.
6. No default of payment of interest, etc.:
The issuing company shall not have defaulted in the payment of interest or principal in respect of fixed deposits and interest payment on dentures or repayment of principal on redemption of debentures. The company must be certain that it has not defaulted in respect of payment of statutory dues of the employees, such as contribution of provident fund, gratuity, bonus, etc.
7.Time within which bonus issue shall be made:
A company which announces a bonus issue after the approval of its Board of Directors must implement the proposal within a period of six months from the date of such approval.
8.Bonus proposal cannot be withdrawn:
A company which has announced its proposal to issue bonus shares, cannot have the option to change its decision.
9.Provision in the articles:
There must be a suitable provision in the Articles of Association of the company for capitalisation of reserves. If not, the company must pass a special resolution and incorporate a suitable provision in the Articles of Association, before initiating action for a bonus issue.
10.Increase in authorized capital:
Where necessary, before action on a bonus issue is taken, the company shall increase its authorised capital so as to permit the proposed bonus issue.
11.Prohibition of issue of bonus shares by revaluation of assets:
The Department of Company Affairs has vide Circular No. 9/94 dated 6-9-1994, informedall companies (listed as well as unlisted) that no company shall venture to issue bonusshares out of reserves created by revaluation of fixed assets.
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FAQs on SEBI Guidelines for Issue of Bonus Shares - Advanced Corporate Accounting - Advanced Corporate Accounting - B Com
| 1. What are SEBI guidelines for the issue of bonus shares? |  |
Ans. SEBI has set certain guidelines for companies that want to issue bonus shares. The guidelines state that the company must have adequate reserves and free cash reserves to issue bonus shares. The company must also disclose the bonus issue to the stock exchange and the shareholders.
| 2. How do bonus shares affect the company's financial statements? | |
Ans. Issuing bonus shares does not affect a company's financial statements. The issuance of bonus shares only increases the number of outstanding shares and reduces the earnings per share. The total equity of the company remains the same, even after the issuance of bonus shares.
| 3. Is the issuance of bonus shares mandatory for companies? | |
Ans. No, the issuance of bonus shares is not mandatory for companies. It is at the discretion of the company's board of directors to decide whether or not to issue bonus shares. The decision is usually based on the company's financial position and the need for capital for future growth.
| 4. Can bonus shares be issued to shareholders who hold shares in physical form? | |
Ans. Yes, bonus shares can be issued to shareholders who hold shares in physical form. The company will issue a bonus share certificate to the shareholder, which can be used to convert the physical shares into electronic form. The shareholder can then trade the bonus shares on the stock exchange.
| 5. How does the issuance of bonus shares affect the market price of a company's shares? | |
Ans. The issuance of bonus shares does not affect the market price of a company's shares in the short term. However, it can have a positive impact on the market price in the long term. This is because the issuance of bonus shares increases the number of outstanding shares, which can increase the liquidity of the shares and attract more investors.
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