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Can bonus shares be withdrawn?

2.7 Bonus issue cannot be withdrawn Rule 14 of Companies (Share Capital & Debentures) Rules, 2014, provides that the Company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same.

taxmann.com - Issues of Bonus Shares - Taxmann

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2.2 Authorization by its Articles of Association

2.3 Authorization of Bonus Issue in General Meeting

2.6 Bonus shares in lieu of Dividend

2.7 Bonus issue cannot be withdrawn

3. Important issues relating to issue of bonus shares

4. Procedure & Practice

Checkout Taxmann's Issue of Shares for Unlisted Companies which is a comprehensive book which explains the provisions and procedure for issuing the shares by unlisted companies in a simplified manner. The book incorporates relevant sections, rules, draft board resolutions or special resolutions, draft letters etc. The issue of bonus shares is one of the common features in the Corporate world. When the Company has accumulated large surplus of profits and it decides to convert this surplus into share capital, then the Company can issue bonus shares to its shareholders in proportion to their respective holding. Bonus Shares are issued by way of capitalisation of profits or reserves of the Company. It is also popularly known as “Capitalisation Shares” as these shares are issued on capitalisation of profits or reserves. The main purpose is to broad base the share capital of the Company. The issue of bonus shares does not entail any cash outflow. Section 63 of the Companies Act, 2013 contains the provisions for issue of bonus shares. A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of—

(i) its free reserves;

(ii) the securities premium account; or

(iii) the capital redemption reserve account:

The Company cannot issue bonus shares by capitalising reserves created by the revaluation of assets.

2.2 Authorization by its Articles of Association

The Bonus issue shall be authorized by Articles of Association. In case the Articles of Association does not authorize the Issue of bonus shares, the same is required to be amended by following the provisions of Section 14 of the Act.

2.3 Authorization of Bonus Issue in General Meeting

The issue of bonus shares shall be previously authorized in the General meeting of the Company, by way of passing ordinary resolution, in case Articles of Association provides for Special resolution, then by way of passing special resolution. The above said resolution shall be passed on the recommendation of the Board of Directors. The company can capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares, only if:

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(i) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it; (ii) it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to provident fund, gratuity and bonus.