The definition also includes the distribution of debentures or deposits by a company, irrespective of whether the debentures or deposits are interest-bearing or not. Further, any issue of bonus shares to preference shareholders (equity shares are not included) is also deemed to be a dividend.
A public limited company gets its equity capital from the investment made by the shareholders. Hence the shareholders expect a return on their investment. The company can do the same either by declaring cash dividends or bonus shares.
Bonus shares are issued by a company when it is not able to pay a dividend to its shareholders due to shortage of funds in spite of earning good profits for that quarter. In such a situation, the company issues bonus shares to its existing shareholders instead of paying dividend.
Section 56 (2) (vii) Income Tax Act does not apply to the issue of Bonus shares because there is a mere capitalization of profits by the issuing company and there is neither an increase or decrease in the wealth of the shareholder as his percentage holding remains constant.
Once a resolution for the bonus issue has been approved by the general body of shareholders, a shareholder cannot refuse to accept the bonus shares. This flows from principles of corporate democracy, under which as a general rule, the majority decision of the shareholders binds the minority.
Ensure that reserves created by revaluation of assets are not used for issue of Bonus Shares. Ensure that party paid up shares, if any, are made fully paid-up before the bonus issue is recommended by the Board of directors. Ensure that the bonus issue is not made in lieu of dividend. 7.
Bonus shares are shares issued to shareholders of a company free of any cost.
|Debit||Undistributed Profit Reserves / Share Premium Reserve / or Other reserves||Number of bonus shares × nominal value of 1 share|
|Credit||Share Capital Account||Number of bonus shares × nominal value of 1 share|
Krishan Kumar that as issuance and allotment of Bonus share is in the long term interest of the Company and its shareholders, they have agreed to waive their rights to receive bonus shares to which they would be entitled.
Therefore, a Section 8 Company cannot issue bonus shares.
Bonus shares are available to shareholders who own the firm’s stock prior to the record date and the ex-date determined by the company. For the delivery of shares in India, the T+2 rolling system is used, in which the ex-date is two days before the record date.