Question

Which provision of the Companies Act, 2013 discusses about the issue of bonus shares out of its free reserves or the securities premium account or the capital redemption reserve account, subject to the compliance with certain conditions such as authorization by the articles, approval in the general meeting

• A. S.36
• B. S.43
• C. S.63
• D. S.33

Hint:

For Share Capital related provisions in the Companies Act 2013, remember these key sections: - S. 52: Application of premiums received on issue of shares. - S. 55: Issue and redemption of preference shares. - S. 62: Further issue of share capital (Rights Issue). - S. 63: Issue of bonus shares. - S. 68: Power of company to purchase its own securities (Buy-back).

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
Bonus shares are additional shares given by a company to its existing shareholders, free of cost. This process is also known as capitalization of profits, where a company converts its reserves into share capital. The Companies Act, 2013, lays down specific provisions governing the issue of bonus shares.
Step 2: Detailed Explanation:
Section 63 of the Companies Act, 2013, is titled "Issue of bonus shares".
This section explicitly provides that a company may issue fully paid-up bonus shares to its members out of:
(i) its free reserves;
(ii) the securities premium account; or
(iii) the capital redemption reserve account.
The section also lays down several conditions that must be met before issuing bonus shares, which include:
- It must be authorized by its articles of association.
- It must be recommended by the Board of Directors and authorized by the company in a general meeting.
- The company must not have defaulted in payment of interest or principal in respect of fixed deposits or debt securities.
- It must not have defaulted in respect of the payment of statutory dues of the employees.
The other sections are incorrect: S.36 deals with the effect of the memorandum and articles, S.43 with kinds of share capital, and S.33 with the issue of application forms for securities.