1 Tlie maximunn amount for which debentures can be issued : 2 The rate of interest and mode of payment,
3 The terms and date and also mode of repayment
4 The assets charged or mortgaged and the nature of mortgage
5 The Ilghts and duties of tn;stees particularly of the time fisher. -he company 16 erring in the payment of interest or principal or hr th
6. Nature and kind of debentures issued
7 Ivlaintenance of mortgaged assets and pro Asion, reeked msurance etc.
INCORPOl TION OF A COMPANY 169
Ans. Issueof Bonus Shares. A bonus issue occurswherethe-compny does not distribute its profits and reserves by way of dividend, but retains them and uses them to pay for the issue of new fully paid shares. The shares so issued are called 'Bonus Shares.' Thus issue of bonus shares implies the payment of diidend in the form of shares instead of cash These new shares are allotted to erpmity shareholders in proportion to their exitirig holdings Asa result of such an issue the holders of existing equity shares receive few aciditionai fulh- paid shares which have been paid for out of the acannulated profits of the conrpan and the companv's issued capital increases, whereas the company s assets remain intact it is for this reason that such an issue is terrued as '0pitalisation of undistribntedl profits' it may be recalled that the capital redemption resend accormt under Section 80(5) and the 'share premium acconnt rmder Sectiou l ca n also be applied towards the issue of bonus shares.
A bonus ice Dmst not be confused with a rights issue'. in case of bonus issue no payment is made by the shareholders but instead the company a,opiies its profits and reserves for that purpose, v hereas payment is made entirely by shareholders subscribing fresh capital in the case of'rights issue'..
- A bonus issue is usually made 'oy a company intending to bring its 'issued capital' more into line with the tnue worth of its underta, so that its annual net profits may not appear to be unduly high as compared widl its paid-up capital. On the other hand a 'rights issue' is made by a company for implementing its expansion diversification and modernization schemes :
Agaun an 'issue of bonus shares' should also be distinguished from an 'issue of shares as donation'. Whereas an allotment of fully paid up bonus shares m accordance faith the provisions of the Actandthe Articles is perfectly valid an allotment of Bully paid up shares as donation to a charitable trust is not vabd in law. The reason being that in case of allotment of bonus shares, accumulated reserves are converted into capital and they represent equivalent assets on the other side of tile Balance Sheet, whereas in case of allotment of shares as donation, there is no payment in money's worth.For ma as issue of bonus shares, the conditions must be complied
I. Sufficient undistributed profits must be there.
2. Articles of Association must contain a provision for capitalization of reserves, etc. and permit the issue of bonus shares.
3 Suitable resolution by the Board of Directors must be passed.
4. Formal approval of the shareholders in a must be secured, provided the Articles expressly so require