Skip to content

CS Executive · Company Law and Practice · Distribution of Profits

Sunrise Textiles Ltd, an Indian company, has a healthy balance in its securities premium account and wishes to issue fully paid-up bonus shares to its members. Which statement is correct under section 63 of the Companies Act, 2013?

A company may issue fully paid-up bonus shares out of its securities premium account. Section 63(1) lists free reserves, the securities premium account and the capital redemption reserve account as permitted sources. The shares must be fully paid and cannot be issued in lieu of dividend.

  1. ABonus shares cannot be issued out of the securities premium account
  2. BBonus shares may be issued out of the securities premium accountCorrect
  3. CBonus shares may be issued out of the securities premium account only if the shares are partly paid
  4. DBonus shares may be issued out of the securities premium account only in lieu of dividend

Explanation

Section 63(1) allows fully paid-up bonus shares out of free reserves, the securities premium account or the capital redemption reserve account. So the securities premium account is a permitted source. The bonus shares must be fully paid and cannot be issued in lieu of dividend, so the other options are wrong.

Did you get it right without looking?

One question tells you little. A timed set on Distribution of Profits shows your real accuracy, how long you take and where you lose marks.

Practise Distribution of ProfitsFree diagnostic mock

More Distribution of Profits questions