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Unit 3: Reissue of Forfeited Shares and Bonus Issue

Resolution for Increased Authorised Capital: Consequent to the issue of bonus shares, if the Notes
subscribed and paid up capital exceed the authorised share capital, a resolution shall be passed
by the company at its general body meeting for increasing the authorised capital.
Return of Bonus Issue: A return of bonus issue along with a copy of resolution authorising the
issue of bonus shares is to be filed with the Registrar within 30 days of the allotment of such
shares.
Issue of Bonus Shares by Public Sector Undertakings: It has come to the notice of the Government
that a number of Central Government Public Sector Undertakings are carrying substantial
reserves in their balance sheets against a relatively small paid up capital base. The question of
the need for these enterprises to capitalize a portion of their reserves by issuing Bonus Shares to
the existing shareholders has been under consideration of the Government. The issue of Bonus
Shares helps in bringing about a proper balance between paid up capital and accumulated
reserves, elicit good public response to equity issues of the public enterprises and helps in
improving the market image of the company. Therefore, the Government has decided that the
public enterprises, which are carrying substantial reserves in comparison to their paid up capital
issue Bonus Shares to capitalize the reserves for which the certain norms/conditions and criteria
may be followed and fulfilled. There are some SEBI guidelines for Bonus issue which are contained
in Chapter XV of SEBI (Disclosure & Investor Protection) Guidelines, 2000 which should be
followed in deciding the correct proportion of reserves to be capitalized by issuing Bonus
Shares.
The amount of profit that is distributed to the shareholders in addition to dividend is called
bonus. This bonus can be declared in the following conditions:

(a) In the condition of Excess Profit: If more profits are earned by a company in a year,
directors of that company do not distribute the entire profit to the shareholders. If the
entire profit is distributed to the shareholders, the current rate of dividend will increase.
And if this profit is not earned in future and current rate to dividend is not maintained, the
company’s goodwill will go down. Therefore, in the case of excess profit, some profit is
distributed in the form of dividend and some in the form of bonus.
(b) In the condition of Excess Reserves: If a company has accumulated more profits or reserves
and directors deem it fit, excess profit or reserves can be distributed among shareholders
in the form of bonus.

This bonus can be distributed in the form of cash, portly paid up shares or fully paid up shares
to the shareholders. Bonus is generally not paid in cash. If it is paid in cash, the working capital
of the company will be adversely affected. Mostly companies use this amount to make up the
existing partly paid up shares as fully paid. This is called Bonus Issue or Bonus Shares. Generally,
bonus shares are issued in the following cases:
(i) When cash is not sufficient to pay off bonus.
(ii) When there is under-capitalisation.
(iii) When there are more general reserves than necessity.

From where the bonus shares can be issued: Bonus shares can be issued from the following
accounts:
(i) From the profits of the company

(ii) From general reserves
(iii) Any reserve which is made from profit
(iv) From capital reserves (in some special cases)

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