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Presentation On SEBI Regulations For Bonus Issue: by Siddharth

The document discusses SEBI regulations regarding bonus share issues by companies. It defines bonus shares as free shares given to existing shareholders based on shares already owned. When a company announces a bonus issue, it also announces a book closure date where transfers are temporarily halted. Regulations require the bonus issue to be from reserves created by genuine profits or share premium, not revaluation. The bonus cannot be in lieu of dividends and partly paid shares must first be made fully paid. Companies must comply with conditions like having authorization in articles, shareholder approval, and increasing authorized capital if needed after the issue.

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Siddharth Gautam
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64 views9 pages

Presentation On SEBI Regulations For Bonus Issue: by Siddharth

The document discusses SEBI regulations regarding bonus share issues by companies. It defines bonus shares as free shares given to existing shareholders based on shares already owned. When a company announces a bonus issue, it also announces a book closure date where transfers are temporarily halted. Regulations require the bonus issue to be from reserves created by genuine profits or share premium, not revaluation. The bonus cannot be in lieu of dividends and partly paid shares must first be made fully paid. Companies must comply with conditions like having authorization in articles, shareholder approval, and increasing authorized capital if needed after the issue.

Uploaded by

Siddharth Gautam
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Presentation on SEBI regulations for Bonus issue

By Siddharth

A bonus share is a free share of stock given to current/existing shareholders in a company, based upon the number of shares that the shareholder already owns at the time of announcement of the bonus. While the issue of bonus shares increases the total number of shares issued and owned, it does not increase the value of the company.. Whenever a company announces a bonus issue, it also announces a "Book Closure Date" which is a date on which the company will ideally temporarily close its books for fresh transfers of stock. Read "Book Closure" for a better understanding.

Advantages of issuing Bonus Shares


Fund flow is not affected adversely. Market value of companys shares comes down to their normal value by issue of bonus shares. Market value of members shar eholding increases with increases with the increase in number of shares in the company. Bonus shares is not an income. Hence not taxable income. Paid-up share capital increases with issue of bonus shares.

Impact on Ratios
The main financial effect of bonus share is that it increases the number of shares outstanding and reduces the earnings per share (EPS). EPS = Net Profit after tax No. of equity shares outstanding As the profits remain the same and the number of shares increases, the value of Earnings Per Share (EPS) will go down. In fact, the stock price should also go down proportionately to the number of new shares. But sometimes, in reality, the share prices may not go down, which gives more advantage to the share holder.

Conditions to be satisfied before issue of Bonus shares


Bonus issue must be authorized by articles of the company. Bonus issue must be sanctioned by shareholders in general meeting on recommendation of Board of Directors of company. Regulation issued by SEBI must be complied with. Authorized capital must be increased wherever necessary

SEBI Regulation for Bonus Issue


No company shall, pending conversion of FCDs/PCDs, issue any shares by way of bonus unless similar benefit is extended to the holders of such FCDs/PCDs, through reservation of shares in proportion to such convertible part of FCDs or PCDs. The bonus issue shall be made out of free reserves built out of the genuine profits or share premium collected in cash only. Reserves created by revaluation of fixed assets are not capitalized. Bonus issue not to be in lieu of dividend. The bonus issue is not made unless the partly-paid shares, if any existing, are made fully paid-up.

The company should not have defaulted in payments of any interest or principal in respect of its fixed deposits, debt securities issued by it. The company should not have defaulted in payments of any statutory dues to the employees such as contribution to provident fund, gratuity, bonus. Implementation of proposal in 15 day The Articles of Association of the company shall contain a provision for capitalization of reserves, etc. Consequent to the issue of Bonus shares if the subscribed and paid-up capital exceed the authorized share capital, a Resolution shall be passed by the company at its general body meeting for increasing the authorized Capital.

Famous Example of bonus issue of shares Reliance Power which got listed in stock exchange in year 2008. IPO price for retail investor was 430 but due to subsequent fall in stock market the company decided issued bonus share. The company decided to issue 3 bonus shares for every 5 shares held.

THANK YOU

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