## SEBI Regulations for Issue of Bonus Shares

### Conditions (All Must Be Satisfied)

#	Condition
1	Must be issued only from free reserves or securities premium account (cash premium)
2	All partly-paid shares must be made fully paid before bonus issue
3	Company must have no default in repayment of loans or statutory dues
4	Bonus shares cannot be issued in lieu of dividend
5	Must be implemented within 6 months of announcement
6	Timeline: Board approval — within 15 days; Shareholder approval — within 2 months

### Memory Aid for Conditions

Source: Only free reserves / securities premium
Pre-condition: No partly-paid shares
No default: Clean record on loans/dues
Not a dividend substitute: Cannot replace declared dividend
Timelines: 15 days (board) → 2 months (shareholders) → 6 months (implementation)

Worked example

### Example 1

ABC Ltd. wants to issue bonus shares but defaulted on a bank loan last quarter. Can it proceed? → No. SEBI prohibits bonus issue if there is any default in loan repayment.

### Example 2

XYZ Ltd. has 50,000 partly-paid shares and wants to issue a 1:1 bonus. What must it do first? → Make all partly-paid shares fully paid before the bonus issue can proceed.

### Example 3

A company announces a bonus issue on 1st January. By when must it be implemented? → Within 6 months — i.e., by 30th June at the latest.

### Example 4

Can a company substitute its dividend payment with a bonus share issue? → No. SEBI regulations explicitly prohibit issuing bonus shares in lieu of dividend.

⚠️ Common exam mistakes

Thinking bonus shares can be issued from any reserve — only FREE reserves and SECURITIES PREMIUM (cash premium) are permitted sources.
Assuming bonus shares can substitute a declared dividend — SEBI explicitly prohibits this.
Confusing the three timelines: 15 days = board approval; 2 months = shareholder approval; 6 months = full implementation.
Ignoring the partly-paid shares condition — this is often tested and is a hard pre-condition before any bonus issue.

Reference: Regulations relating to Bonus Issue — SEBI (Issue of Capital and Disclosure Requirements) Regulations

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