A company may, if the articles so provide, capitalise
profits by issuing fully paid-up shares to the members thereby transferring the
sums capitalised from the profit and loss account or Reserve Account to the
Share Capital [s.205 (3)]. Such shares are known as bonus shares and are issued
to the existing members of the company free of charge.
The issue of bonus shares is regulated not only by the
Companies Act, 1956 but also by the guidelines issued by SEBI in this regard.
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