What course of action should be followed by a company, if it has accumulated free reserves and is desirous of bridging the gap between the capital and fixed assets. Mention the conditions which must be satisfied before f

When a company has accumulated free reserves and is desirous of bridging the gap between the capital and fixed assets, it issues bonus shares to its equity shareholders. Such an issue would not place any fresh funds in the hands of the company. On the contrary, after a bonus issue it would become necessary for the company to earn more to effectively service the increased capital. The shareholder will, however, be benefitted by way of increased return on investment and increased number of shares in their hands. The following conditions must be satisfied before issuing bonus shares: Bonus Issue must be authorised by the articles of the company. Such a provision is generally there in articles of almost all the companies as they adopt Table A of Schedule I of the Companies Act, 2013, Regulation 96 of ICDR Regulations, 2009. Bonus Issue must be sanctioned by shareholders in general meeting on recommendation of the Board of Directors of the company. Regulations issued by SEBI must be compiled with. Authorised Capital must be increased where necessary. The Company should ensure that it has not defaulted in the payment of interest or principal in respect of fixed deposit or debt securities issued by it. (Section 63(2)(c), Companies Act, 2013). The company has not defaulted in respect of the payment of stationary dues of the employees, such as contribution to provident fund, gratuity and bonus (Section on 63(2)(d), Companies Act, 2013). The partly paid up shares, if any outstanding on the date of allotment are made fully paid up. (Section on 63 (2) (e), Companies Act, 2013).