Issue Bonus Shares explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
To issue bonus shares, confirm the Articles authorise capitalisation, ensure sufficient free reserves/securities premium/capital redemption reserve and authorised capital, obtain Board recommendation and members' approval under Section 63, allot the shares and file Form PAS-3 within 30 days.
Overview
A bonus issue capitalises a company's accumulated reserves into share capital, giving existing shareholders additional fully paid shares free of cost, in proportion to their holdings. It rewards shareholders and improves share liquidity without any cash outflow.
When It Is Required & Legal Basis
Section 63 permits a company to issue fully paid-up bonus shares out of its free reserves, securities premium account, or capital redemption reserve account. It prohibits use of revaluation reserves and bars a bonus issue in lieu of dividend or where the company has defaulted on debt or statutory dues to employees.
Step-by-Step Process
- Check Articles & capital. Ensure the AOA authorises capitalisation and that authorised capital covers the new shares; increase via SH-7 if required.
- Verify sources. Confirm adequate free reserves/securities premium/CRR and that no partly paid shares are outstanding.
- Board recommendation. The Board recommends the bonus ratio and convenes the general meeting.
- Members' approval. Members approve the bonus issue in the general meeting.
- Allotment. Allot the bonus shares and issue certificates in SH-1 within 2 months.
- File PAS-3. File the return of allotment in Form PAS-3 within 30 days.
Forms, Attachments & Fees
| Form | Purpose | Timeline |
|---|---|---|
| SH-7 (if needed) | Increase authorised capital | Before allotment |
| PAS-3 | Return of bonus allotment | Within 30 days of allotment |
| SH-1 | Bonus share certificates | Within 2 months of allotment |
Attachments to PAS-3: board and members' resolutions and list of allottees. Bonus issue itself is free to shareholders; company bears MCA fees and stamp duty on certificates (state-specific).
Timeline & Due Dates
Once recommended, a bonus issue cannot be withdrawn. Certificates issue within 2 months of allotment (Section 56); PAS-3 within 30 days of allotment.
Penalty for Delay / Non-compliance
Late PAS-3 attracts additional fees. Failure to issue certificates in time attracts penalty under Section 56 — company ₹50,000 and officers with continuing default. Using ineligible reserves risks the allotment being challenged.
Practical Tips
- Reconcile the free reserves and securities premium balances with the latest audited accounts before recommending the ratio.
- Make any partly paid shares fully paid before the bonus issue.
- Do not use bonus shares as a substitute for a dividend that the company is otherwise obliged to pay.