Companies Act Section 63 — Issue of bonus shares
CHAPTER IV SHARE CAPITAL AND DEBENTURES
Commercial / Corporate
Summary
Sub-section (1) allows a company to issue fully paid-up bonus shares to its members in any manner it chooses, using funds from its free reserves, the securities premium account, or the capital redemption reserve account. However, it cannot issue bonus shares by capitalising reserves that were created from the revaluation of assets.
Sub-section (2) sets out the conditions that must be met before a company can capitalise its profits or reserves to issue fully paid-up bonus shares. Under clause (a), the company's articles must authorise the issue. Under clause (b), the company must have been authorised to do so in a general meeting, based on a recommendation from the Board. Under clause (c), the company must not have defaulted on paying interest or principal for its fixed deposits or debt securities. Under clause (d), the company must not have defaulted on paying statutory dues owed to employees, such as provident fund contributions, gratuity, and bonus. Under clause (e), any partly paid-up shares that are outstanding on the date of allotment must be made fully paid-up. Under clause (f), the company must comply with any other conditions that may be prescribed.
Sub-section (3) states that bonus shares cannot be issued in place of a dividend.
Official Text
(1) A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of—
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account:
Provided that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.
(2) No company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares under sub-section (1), unless—
(a) it is authorised by its articles;
(b) it has, on the recommendation of the Board, been authorised in the general meeting of the company;
(c) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;
(d) it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus;
(e) the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;
(f) it complies with such conditions as may be prescribed.
(3) The bonus shares shall not be issued in lieu of dividend.