Bonus Shares and Rights Share
Profit making companies may desire to convert their profit into share capital. This can be done by issue of bonus shares. Issue of Bonus shares is also called as conversion of profit into share capital or capitalisation of profits. Bonus can be of two types:
- Making partly paid shares into fully paid by declaring bonus without requiring shareholders to pay for the same.
- Issue of fully paid equity shares as bonus shares to the existing equity shareholders
A company can issue additional shares at any time by passing an ordinary resolution at its General Meeting. However such additional shares must be first offered to the existing equity shareholders in the proportion of the shares already held by them. Such additional shares are called “Rights Shares”. Rights shares should be within the limits of the authorized capital. If not so, then the authorized capital must be increased first suitably. The issue of Rights Shares is to be made after two years from the formation of the company or after one year from the first allotment of shares.