Every public company lists its shares for public subscription in order to gain capital for its functioning. Buyer of these shares is called shareholders and they play very important role in functioning of company. In order to keep their interest and to give something as a way of gift to the shareholders company distributes bonus shares to them. Bonus shares are given for free of cost to the shareholders.


                                             Bonus shares are issued by company to its shareholders as a way of gift, it’s basically a way of company to reward their shareholders for acquiring shares of the company. Shareholders get dividend on the shares they own. Sometimes companies issues bonus shares to their shareholders for the dividend, and of the same value as dividend. Companies usually have ratios to issue bonus shares for example – if ratio is 1.7 then shareholder will get 1 share for every 7 shares he holds.


                                               There are two types of bonus shares, they are as follows,

  1. Fully paid bonus shares – fully paid bonus shares are those shares which are fully paid and bear no extra cost at the part of the investor.
  2. Partly paid-up bonus shares – when company sells its shares, they set an issue price of shares and investors buy shares at that particular issue price. But in partly paid-up shares investors can buy shares without making full payment of it, company when in need of the capital calls for such unpaid money from partly paid-up shareholders. so, when bonus is declared, company converts partly paid shares into fully paid without calling for the unpaid money.


                                                                              Issuing bonus shares is beneficial for company as well as investors too, advantages of issuing bonus shares are as follows-

  1. It is beneficial for investors as it increases their total investment and in return, they get higher amount of dividend.
  2. It keeps investors interested in the company and rewards them for their part in raising capital.
  3. Investors does not have to pay tax on the bonus shares received.
  4. Issuing bonus shares will increase the free-floating shares in the market.


                                                                                   There are some disadvantages too of issuing bonus shares from companies point of view these are as follows-

  1. Company do not get any money for issuing bonus shares.
  2. Company has to pay dividend on the share they distribute as bonus shares.



The important provisions in the Companies Act relating to the issue of bonus shares

are as follows:

(a) The Act does not contain any definition of the term bonus shares.

(b) Schedule I – Table A, which provides for the model Articles of Association of a

Limited Company provides that the bonus issue can be made by capitalising

free reserves.

(c) Fully paid-up bonus shares can also be issued from the Capital Redemption

Reserve and the Share Premium Account.

(d) The Articles of Association of the Company must provide for issue of bonus

shares. If the Articles do not provide for a Bonus issue, then they must first

be amended.

(e) Bonus shares can also be issued by paying up any amount remaining unpaid

on existing shares.

(f) An unlisted public company and a private limited company can issue bonus

shares even out its revaluation reserve. The recent Supreme Court decision

in the case of Bhagwati Developers v. Peerless General Finance &

Investment Company (2005) 62 SCL 574 (SC) has laid the controversy

over this issue to rest.


The SEBI DIP Guidelines contain certain additional provisions for the issue of

bonus shares by a listed company. The important provisions may be summarised as


(a) If any FCDs/ PCDs are pending conversion, then a bonus issue cannot be

made unless a similar benefit is extended to the holders of such FCDs/


(b) The bonus issue shall be made out of free reserves built out of the genuine

profits or out of share premium collected in cash only. Thus, if shares are

issued for consideration other than cash, then premium on such shares

would not be considered.

(c) Bonus shares cannot be issued out of revaluation reserves by a listed


(d) Bonus, in lieu of dividend, is not allowed.

(e) The bonus issue is not made unless the existing partly-paid shares are made

fully paid-up.

(f) The Company:

 has not defaulted in payment of interest or principal on fixed deposits and

interest or principal on existing debentures and

 has sufficient reason to believe that it has not defaulted in respect of the

payment of statutory dues of the employees such as contribution to

provident fund, gratuity, bonus etc.

(g) Once the approval of the Board of Directors for the bonus issue is received,

the company must implement the proposal within 6 months from the date of

such approval and it shall not have the option of changing the decision.


The FEMA Regulations permit an Indian company to issue bonus shares to its non-resident shareholders, subject to the following conditions:

(a) the original is acquired or held by the non-resident shareholder in

accordance with the FEMA Rules/ Regulations applicable to such acquisition;

(b) the bonus shares acquired by the non-resident shareholder shall be subject

to the same conditions including restrictions in regard to repatriability as are

applicable to the original shares.



Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.


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The copyright of this Article belongs exclusively to Ms. Aishwarya Sandeep. Reproduction of the same, without permission will amount to Copyright Infringement. Appropriate Legal Action under the Indian Laws will be taken.

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In the year 2021, we wrote about 1000 Inspirational Women In India, in the year 2022, we would be featuring 5000 Start Up Stories.

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