Bonus shares

Bonus issue is also one of the ways to raise capital but it does not bring in
any fresh capital. Some companies distribute profits to existing
shareholders by way of fully paid bonus shares instead of paying them a
dividend. Bonus shares are issued in the ratio of the existing shares held. The
shareholders do not have to pay for bonus shares but the retained earnings
are converted into capital. Thus, bonus shares enable the company to
restructure its capital.
Bonus is the capitalisation of free reserves. Higher the free reserves,
higher are the chances of a bonus issue forthcoming from a corporate.
Bonus issues create excitement in the market as the shareholders do not have
to pay for them and in addition, they add to their wealth. A bonus issue results
in an increase in the company's equity capital. A bonus issue by a company
indicates management's confidence in strong earnings growth and
maintenance of its present level of dividend rate in the future

Bonus shares

A listed company proposing to issue bonus shares shall comply with the
following:
1. The bonus issue shall be made out of free reserves built out of the
genuine profits or share premium collected in cash only.
2. Reserves created by revaluation of fixed assets cannot be capitalised.
3. The declaration of bonus issue, in lieu of dividend, cannot be made.
4. The bonus issue cannot be made unless the partly-paid shares, if any
existing, are made fully paid-up.
5. The Company
6. has not defaulted in payment of interest or principal in respect of fixed
deposits and interest on existing debentures or principal on redemption
thereof; and
7. has sufficient reason to believe that it has not defaulted in respect
of the payment of statutory dues of the employees such as contribution
to provident fund, gratuity, bonus, etc.
8. A company which announces its bonus issue after the approval of
the Board of Directors must implement the proposal within a period of 6
months from the date of such approval and shall not have the option of
changing the decision.
9. The Articles of Association of the company shall contain a provision for
capitalisation of reserves, etc.
10. If there is no such provision in the Articles the company shall pass a
 Resolution at its general body meeting making provisions in the
Articles of Associations for capitalisation.
11. Consequent to the issue of Bonus shares if the subscribed and paid-
up capital exceeds the authorised share capital, a Resolution shall be
passed by the company at its general body meeting for increasing the
authorised Capital.
12. No company shall, pending conversion of FCDs/PCDs, issue any
shares by way of bonus unless similar benefit is extended to the holders
of such FCDs/PCDs, through reservation of shares in proportion to such
convertible part of FCDs or PCDs. The shares so reserved may be
issued at the time of conversion(s) of such debentures on the same
terms on which the bonus issues were made.

Example
Reliance Power Bonus Share Record Date announced - June 02, 2008
Reliance Power limited (REPL) has announced the record date for its bonus
shares, June 02, 2008. Company will issue 3 bonus shares for every 5 shares
hold by investors at the end of day June 02, 2008.

:Tata Consultancy Services, the country's largest software firm, on Thursday

said it has allotted its over 97.86 crore equities to the

investors of the company under the bonus share issue offer.
Over 97.86 crore shares have been allotted to the shareholders of the
company, TCS said in a filing to the BSE. Shareholders of the company have
already approved the issue of bonus shares in the ratio of 1:1, it added.

Bank of Rajasthan will issue over 26.8 million bonus shares in the ratio of one
bonus share for every five shares

Bank of Rajasthan will issue over 26.8 million bonus shares in the ratio of one
bonus share for every five shares
Equity/Ordinary Shares
Stock Option or Employees Stock option:

A method of marketing the securities of a company where are employees are

encouraged to take shares - and subscribe to it is known as 'stock option'. It is a
voluntary scheme on the part of the company to encourage ,employees'
participation in the company. The scheme also offers an incentive to the
employees to stay in the -company. The scheme is particularly useful in the
case of companies whose business activity is dominantly -used on the talent of
the employees, as in the case of software industry. The scheme helps retain
their most Productive employees in an industry.
Company whose securities are listed on any stock exchange can introduce the
scheme of employees' stock option. The offer can be made subject to the
conditions specified below:
1. Issue at discount Issue of stock options at a discount to the market
price would be regarded as another form of employee compensation and
would be treated as such in the financial statements of the company
regardless the quantum of discount on the exercise price of the options.
2. Approval: The issue of ESOPs is subject to the approval by the
shareholders through a special resolution.
3. Maximum limit There would be no restriction on the maximum number of
shares to be issued to a single employee. However, in cases of employees
being offered more than I percent shares, a specific disclosure and
approval would be necessary in the AGM.
4. Minimum period A minimum period of one year between grant of
options and its vesting has been subscribed. After one year, the
company would determine the period during which the option can be
exercised.
5. Superintendence The operation of the ESOP Scheme would have to be
under the superintendence and direction of a Compensation Committee
of the Board of Directors in which there would be a majority of
independent directors.
6. Eligibility ESOP scheme is open to all permanent employees and to the
directors of the company but not promoters and shareholders. The
scheme would be applicable to the employees of the subsidiary or a
holding company with the express approval of the shareholders.
7. Director's report The Director's report shall make a disclosure of the
following:
• Total number of shares as approved by the shareholders
• The pricing formula adopted
• Details as to options granted, options vested, options exercised and options
forfeited, extinguishments or modification of options, money realized by
exercise of options, total number of options in force, employee-wise details
of options granted to senior managerial personnel and to any other
employee who receive a grant in any one year of options amounting to 5
percent or more of options granted during that year
• Fully diluted EPS computed in accordance with the AS

Recent ESOPS issued by the company

Hyderabad, June 24 The board of directors of Matrix Laboratories Ltd has
allotted about 17.25 lakh equity shares of Rs 2 each to Matrix ESOP Trust under
Employee Stock Option Plan schemes, the company said in a filing to the BSE.
Consequent to this, the paid-up share capital of the Hyderabad-based company
had increased to over Rs 31.26 crore, the release added.

The board of directors of Dr Reddy’s Laboratories Ltd approved the grant of

9,000 stock options, exercisable at par value of Rs 5 to the independent directors
of the company under employees’ stock option scheme. It also granted another
9,000 stock options at par value of Rs 5 to them under its ADR stock option
scheme. Further, the compensation committee of the board approved the grant
of 3,50,840 stock options, exercisable at par value of Rs 5 to the employees of
the company, the company informed BSE.

Zee Entertainment Enterprises Ltd, one of India’s largest listed media firms,
said its board has approved an employee stock options (esop) programme for
the benefit of its employees and directors. Stock options will be issued over a
period of five years and would be convertible into equity shares up to maximum
of 5% of paid up capital of the company. ZEEL is part of the Subhash Chandra
(pictured) -promoted Essel Group. “The employee stock options scheme, subject
to shareholders approval, is a mechanism to not only reward the efforts of the
employees, as also to develop a greater ownership and to develop a stronger
foundation for the future,” CEO Puneet Goenka said in a statement. The scheme
is subject to the approval of shareholders of the company at the annual general
meeting scheduled for 18 August.