ISSUE OF BONUS SHARES
Yes, It is true that In India even a small company can issue bonus shares and that too to non-resident shareholders, including those outside India, subject to certain conditions. Specifically, the company must comply with the applicable laws and regulations, including the Foreign Exchange Management Act (FEMA) and the sectoral caps. Additionally, the issuance of bonus shares should not alter the existing shareholding pattern of non-resident shareholders.
Here’s a more detailed description:
- Compliance with other laws and FEMA:
Companies must ensure that the bonus share issue complies with all relevant provisions of FEMA, the Companies Act, and other applicable regulations.
- Not to change the shareholding pattern:
The impact is that the issuance of bonus shares should not change the proportion of non-resident shareholders’ holdings. This means the percentage of shares held by non-resident shareholders should remain the same after the bonus issue.
- Compliance with sectoral caps:
If the company is in a sector with a specific foreign direct investment (FDI) cap, the issuance of bonus shares must adhere to that cap.
- Government approval (usually) not required:
In most cases, the issuance of bonus shares to non-resident shareholders does not require specific government approval. It is generally allowed under the automatic route of FDI.
- Prohibited sectors:
Even in sectors where FDI is prohibited, Indian companies can issue bonus shares to pre-existing non-resident shareholders, provided the shareholding pattern of the non-resident shareholders remains unchanged.
Thus, in essence, a company can issue bonus shares to non-resident shareholders, but it must ensure compliance with various regulations and keep in mind to avoid altering the existing shareholding pattern of these shareholders.
