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CS Executive · Company Law and Practice · Distribution of Profits

Lotus Foods Ltd has 10 lakh equity shares of ₹10 each, of which 9 lakh are fully paid and 1 lakh are paid up to ₹6 per share. It has ample free reserves and satisfies all other conditions for a bonus issue. What must the company do under section 63 before allotting bonus shares?

The company must make the outstanding partly paid-up shares fully paid-up by the date of allotment. Section 63(2)(e) makes this a condition for capitalising profits or reserves, and section 63(1) allows only fully paid-up bonus shares. It cannot skip the partly paid holders or issue partly paid bonus shares.

  1. AIssue bonus shares only to holders of fully paid shares and leave the partly paid shares as they are
  2. BMake the outstanding partly paid-up shares fully paid-up by the date of allotmentCorrect
  3. CConvert the partly paid shares into preference shares
  4. DIssue the bonus shares as partly paid to match the existing shares

Explanation

Section 63(2)(e) requires that partly paid-up shares outstanding on the date of allotment be made fully paid-up. Section 63(1) permits only fully paid-up bonus shares, so issuing partly paid bonus shares is wrong. The company needs to call the unpaid ₹4 per share on 1 lakh shares, or otherwise make them fully paid, before allotment.

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