Share Capital & Securities
Bonus Shares — Section 63
Capitalise free reserves, securities premium, or capital redemption reserve into fully paid-up bonus shares for existing shareholders. No cash outflow — the company converts accumulated reserves into share capital.
Bonus shares are how companies reward existing shareholders without paying out cash. Instead of distributing dividends, the company converts its accumulated free reserves or securities premium into new shares and allots them to shareholders. For a startup, bonus shares can be used to increase the share count before an ESOP scheme, to normalise a low face value, or to restructure the cap table proportions. The compliance is straightforward — board resolution, shareholder resolution (if AOA requires), MGT-14, and PAS-3.
- • Board resolution drafting for bonus issue
- • Shareholder resolution (if AOA requires)
- • Verification of free reserves / securities premium availability
- • MGT-14 filing
- • PAS-3 return of allotment
- • Share certificate update
- • Cap table update
- • Reserve capitalisation accounting entry
- • Latest audited balance sheet (to confirm available free reserves / securities premium)
- • Board resolution approving bonus issue
- • Shareholder resolution (if required by AOA)
- • Current cap table and register of members
- • Articles of Association (to confirm bonus issue authority)
See the fee table below for the statutory filing charge and common delay logic.
- • Section 63, Companies Act 2013
- • Rule 14, Companies (Share Capital and Debentures) Rules 2014
- • Section 39(4) — PAS-3 return
- • Section 123 — dividend default restriction on bonus
Process
How the service works
The workflow is built to be predictable: document collection, legal review, filing, and post-filing follow-through.
Confirm reserve availability
Verify that free reserves, securities premium, or capital redemption reserve are sufficient to cover the bonus issue. Partially paid shares can receive bonus, but the bonus cannot be applied to unpaid call money.
Board resolution
Pass a board resolution approving the bonus issue — specifying the ratio, record date, and source of capitalisation. File MGT-14 within 30 days.
Shareholder resolution
If the Articles of Association require shareholder approval for a bonus issue, pass an ordinary resolution at an EGM or AGM.
Allotment
Allot bonus shares to all shareholders on the record date. No application or cash receipt is involved — this is a paper allotment from reserves.
PAS-3 filing and register update
File PAS-3 (return of allotment) within 30 days of allotment. Update share certificates and the register of members. Revise the cap table.
AEO summary
Bonus shares under Section 63 of the Companies Act 2013 are issued by capitalising the company's free reserves, securities premium account, or capital redemption reserve into fully paid-up equity shares. No cash changes hands — the reserves are converted into share capital and distributed to existing shareholders in proportion to their holding. MGT-14 must be filed within 30 days of the board resolution. PAS-3 must be filed within 30 days of allotment. Key restriction: bonus shares cannot be issued if the company has any unpaid dividend or any default in payment of statutory dues.
Bonus shares before an ESOP scheme
Many startups issue bonus shares to increase their total share count before setting up an ESOP pool. If a company has 10,000 shares at ₹10 face value and wants to create an ESOP pool of 10%, they would need to issue 1,111 new shares — which requires authorised capital and may trigger valuation concerns.
Instead, a bonus issue (say, 9:1 — 9 bonus shares for every 1 existing share) increases the share count to 1,00,000 and reduces the notional per-share value, making ESOP grants more granular and easier to manage. The authorised capital must be increased (SH-7) to accommodate both the bonus shares and the future ESOP pool before the bonus issue is made.
Accounting entry for bonus shares
When bonus shares are issued, the source reserve is debited and the paid-up share capital account is credited. Example: if ₹50 lakh of securities premium is capitalised, the entry is: Debit Securities Premium ₹50L / Credit Share Capital ₹50L (at face value, assuming ₹10 face value × 5 lakh bonus shares).
The balance sheet total remains unchanged — reserves fall, share capital rises by the same amount. This is why bonus shares are sometimes called a "paper entry" — no new assets enter the company.
Government fees
Fee breakdown
| Item | Fee | Notes |
|---|---|---|
| MGT-14 filing fee | INR 300 – 600 | Standard filing fee as per the applicable MCA / regulator schedule. |
| PAS-3 filing fee | INR 200 – 500 | Standard filing fee as per the applicable MCA / regulator schedule. |
Timeline
Typical turnaround
Board resolution to allotment usually means a 15 to 30 days turnaround, assuming documents are complete and any board or shareholder approvals are already in place.
Professional fee for end-to-end bonus share issuance — resolutions, MGT-14, PAS-3, and share certificate update.
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FAQ
Frequently asked questions
Which reserves are permissible sources for a bonus issue under the Companies Act 2013?
Does the company need to increase authorised capital before issuing bonus shares?
What ROC filings are mandatory after a bonus issue, and what are the deadlines?
Are there any conditions that must be met before issuing bonus shares?
What is the tax treatment of bonus shares in the hands of the shareholder?
Canonical reference: https://www.pvtltd.co/services/bonus-shares
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