# Bonus Issue of Shares

> A company can issue fully paid bonus shares to existing shareholders out of free reserves, the securities premium account or the capital redemption reserve under Section 63, if its articles authorise it, the board recommends it and shareholders approve it in a general meeting. Bonus shares cannot be issued in lieu of dividend or out of revaluation reserves, and the company must not be in default on deposits, statutory dues or employee dues.

Practice: Company Secretary & Corporate Compliance — https://www.industax.com/services/company-secretary/

A bonus issue rewards shareholders without cash leaving the company and often brings the share count in line before a fundraise or ESOP grant. The authorised capital must be sufficient; if not, it is increased first.

For shareholders, bonus shares have nil cost for capital gains; the holding period starts on allotment.

We check the reserves, the conditions in Section 63, draft the approvals, file PAS-3 within 30 days and update the registers.

## Key facts

| Item | Detail |
| --- | --- |
| Sources | Free reserves, securities premium, capital redemption reserve |
| Not from | Revaluation reserves; not in lieu of dividend |
| Approvals | Articles authority, board recommendation, general meeting |
| Filing | PAS-3 within 30 days |
| Tax cost of bonus shares | Nil for capital gains |

## Who needs this

- Companies with accumulated reserves
- Startups adjusting share count before a round or ESOP pool
- Companies rewarding long-standing shareholders without paying out cash

## What's included

- Eligibility check under Section 63
- Authorised capital check and increase if needed
- Resolutions and PAS-3
- Register and cap table update

## Documents

- Latest audited balance sheet
- Articles of association
- Register of members

## Process

1. **Check** — Reserves and Section 63 conditions verified.
2. **Approve** — Board recommendation and shareholder approval.
3. **Allot** — Bonus shares allotted; PAS-3 filed.

## FAQs

### Can bonus shares be issued from securities premium?

Yes, the securities premium account is a permitted source under Section 63.

### What is the cost of bonus shares for tax?

Nil. The entire sale price is capital gain when you sell, and the holding period starts from allotment.

### Can a company in default issue bonus shares?

Not if it has defaulted on interest or principal of deposits or debt securities, or on statutory dues to employees such as PF, gratuity or bonus.

## Official sources

- Ministry of Corporate Affairs — MCA21 portal: https://www.mca.gov.in/
- Companies Act, 2013 (India Code): https://www.indiacode.nic.in/handle/123456789/2114

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This is general information, not advice for your specific facts.