Primarily, it should be ascertained whether the Articles permit capitalisation of profits; also whether the company had a sufficient number of unissued shares for allotment as bonus shares. In addition, the following steps should be taken :

  1.  Inspect the Minute book of Shareholders for the resolution authorising declaration of the Bonus and Director’s Minute for the resolution appropriating profits for being applied in payment of shares to be allotted to shareholders as bonus shares;
  2.  Trace the allotment of shares as per particulars contained in the Allotment Book or sheets into the Register of Members; and
  3.  Confirm that all statutory requirements relevant to the issue of shares have been complied with, viz., the filing of the particulars of the bonus shares allotted with the Registrar together with a copy of the resolution pursuant to which allotment has been made.
  4.  Confirm that the issue of fully paid up bonus shares in pursuance of sub-section (3) of Section 205 has been kept in abeyance in respect of shares where any instrument of transfer of such shares has been delivered to the company for registration and the transfer of such shares has not been registered by the company as required by the provisions of section 206A of the Companies (Amendment) Act, 1988.
  5. Ensure that SEBI Guidelines relating to issue of bonus shares have been complied with. It has been stated earlier in this chapter that the balances in the Securities Premium Account and Capital Redemption Reserve Account, which are not available for distribution as dividend, can be utilised for allotment of fully paid bonus shares to the members and the balance in the above-mentioned account are usually first utilised for the purpose. All applications for bonus issue have to be signed by a person not below the rank of a Director together with a certificate indicating that the information furnished is true and correct and that all the data acquired in the application form and guidelines has been furnished.
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