Introduction of Bonus Shares
• Bonus issue means offer of free additional shares to the existing shareholders. A company may
decide to distribute further shares as an alternative to increase dividend pay-out.
• Bonus shares may be issued by company to restructure the company’s reserves. Issue of bonus
shares will increase the company’s cash flow but the net asset of the company will remain same.
• Example: Company issues Bonus shares in the ratio of 4:1 (1 Bonus share for every 4 shares held
by the shareholder). If Mr. X is an existing shareholder who holds 400 shares of the company, he
will get 100 bonus shares, now his total holding will be 500 shares in the company. Later at the
time of issuing dividend, he will get dividend on 500 shares.
• Whether there is issue of dividend or issue of bonus shares, the purpose is providing income to
the shareholders. While at the time of dividend issue, shareholders may get money in cash and at
the time of issuing bonus shares, shareholder will get benefit through shares that they can sell
and get liquidity on the same.
Companies Act provisions on Issue of Bonus Shares
Under the Earlier Companies Act 1956, there was no specific section governing the issue of Bonus
Shares. Earlier, there were norms issued by the Controller of Capital Issues which have now been
abolished after the emergence of SEBI as a regulator. The Companies Act 2013, Section 63 under
Chapter IV: ‘Share Capital and Debentures’ lists out the guideline companies need to follow while
issuing bonus shares.
