Sebi Guidelines for Issue of Bonus Shares
SEBI Guidelines for Issue of Bonus Shares:
A Company may issue bonus shares without obtaining prior approval but only after a period of 12 months after a public/rights issue and after safeguarding the rights of fully convertible and partly convertible debentures falling due for conversion within 12 months from the date of bonus issue. A bonus issue should take into consideration the future earning potential of the company, to conserve liquid reserves and to utilise reserves for issuing shares to make paid-up capital correspond to the capital actually employed. A bonus issue is an important financial decision and it should be in conformity with the following guidelines prescribed by SEBI:- 1. Bonus Issue from Free Reserves. The bonus issue is made out of free reserves built out of the genuine profits or share premium collected in cash only. 2. Reserves by Revaluation. Reserves created by revaluation of fixed assets cannot he used for bonus issue. 3. Residual Reserves. Certain reserves such as development rebate or investment allowance reserve is considered as free reserve for the calculation of residua] reserve test. 4. Other Reserves. The voluntary reserves created by the company such as Depreciation Reserve, Assets Equalisation Reserve, Inflation Reserve, etc, may be eligible for issue of bonus shares but it is desirable that any such reserve may first be transferred to General Reserve before capitalisation. Reserves like Export Reserve and profits not transferred to any Reserve are free reserves eligible for Capitalization. 5. Contingent Liabilities. All contingent liabilities disclosed in Audited Accounts which have bearing on the net profits, shall be taken into account in the calculation of the residual reserves. 6. Residual Reserve Test. The residual reserves after the proposed capitalization shall be at least 40 per cent of the increased paid up capital. 7. Rate of Return Test. 30 per cent of the average profits before tax of the
A Company may issue bonus shares without obtaining prior approval but only after a period of 12 months after a public/rights issue and after safeguarding the rights of fully convertible and partly convertible debentures falling due for conversion within 12 months from the date of bonus issue. A bonus issue should take into consideration the future earning potential of the company, to conserve liquid reserves and to utilise reserves for issuing shares to make paid-up capital correspond to the capital actually employed. A bonus issue is an important financial decision and it should be in conformity with the following guidelines prescribed by SEBI:- 1. Bonus Issue from Free Reserves. The bonus issue is made out of free reserves built out of the genuine profits or share premium collected in cash only. 2. Reserves by Revaluation. Reserves created by revaluation of fixed assets cannot he used for bonus issue. 3. Residual Reserves. Certain reserves such as development rebate or investment allowance reserve is considered as free reserve for the calculation of residua] reserve test. 4. Other Reserves. The voluntary reserves created by the company such as Depreciation Reserve, Assets Equalisation Reserve, Inflation Reserve, etc, may be eligible for issue of bonus shares but it is desirable that any such reserve may first be transferred to General Reserve before capitalisation. Reserves like Export Reserve and profits not transferred to any Reserve are free reserves eligible for Capitalization. 5. Contingent Liabilities. All contingent liabilities disclosed in Audited Accounts which have bearing on the net profits, shall be taken into account in the calculation of the residual reserves. 6. Residual Reserve Test. The residual reserves after the proposed capitalization shall be at least 40 per cent of the increased paid up capital. 7. Rate of Return Test. 30 per cent of the average profits before tax of the