Question

Answer in brief: State the provisions relating to Bonus Shares.

Hint:

Remember, a bonus issue is a reward to shareholders. The key rules are: it must be allowed by the AoA, approved by shareholders, paid from specific reserves, and the company must have a clean record of its payment obligations.

Answer 1

Answer in brief: State the provisions relating to Bonus Shares.

Bonus Shares are additional shares issued by a company to its existing shareholders, typically in proportion to the shares they already hold. The provisions relating to Bonus Shares are as follows:

• Source of Issue: Bonus shares are issued from the company's accumulated profits, reserves, or surplus.
• Authorization: The issuance of bonus shares must be authorized by the company's Board of Directors and approved by shareholders in the Annual General Meeting (AGM).
• Ratio: Bonus shares are usually issued in a fixed ratio, such as 1:1, 2:1, etc., meaning that for every share held, the shareholder receives a certain number of bonus shares.
• Capitalization: The issue of bonus shares capitalizes the company's reserves by converting them into share capital, without any cash outflow.
• Eligibility: Only the existing shareholders of the company are eligible to receive bonus shares. The eligibility is determined by the record date set by the company.
• Effect on Shareholder: The shareholder’s total holding increases, but the overall value of their investment remains the same since the price per share is adjusted downward after the bonus issue.