Excitations. The provision of Section 81 do not apply

(i) to a private company unless its Articles provide otherwise.

(i i) to the increase of subscribed capital of public company caused by the exercise of an option by convertible debentures or loans, as per terms of issue,

provided the terms of issue are duly approved: (a) by the Central Government; and (b) by a special resolution of the company.

Where the convertible debentures are issued to or loan is obtained from the Government, or any institution specified by the Goverrunent in this behalf.

the Government approval and passing of special resolution is not necessary.

What are Bonus Shares ‘! When are they issued? State the legal provisions in relation to the issue of such shares.

When a company accumulates large free reserves and intends to bridge the gap between the capital and fixed assets, it issues Bonus Shares to its equity

(ordinary) shareholders. Therefore a bonus issue cannot be made where there is no undistributed profits or reserves with the company since the nlain

purpose of issue of Bonus Shares is to capitalise proh,s which are available for distribution as dividend. For this purpose the SecmitiesPremium Account

uls 78 (2) and the Capital Redemption Reserve Account (us 80 (5), can also be applied for the issue of bonus shares.

Companies issue Bonus Shares out of its accumulated profits and reserve and the shareholders do not pay anything to the issue of bonus shares.

For making an issue of bonus shares, the following conditions must be complied with:

I. Sufficient undistributed profits must be there. The two other sources from which bonus shares may be financed are Securities Premium Account

and Cal)ital Rcdcml)tion Resenre Account [Section 78 (2) & 80 (5)].

2. Articles must permit such an issue.

3. Suitable resolution by the Board of Directors must be passed. 4. Formal approval of the shareholders in a general meeting must be secured. For this

purpose, ordinary resolution must be passed.