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Under Section 63 of the Companies Act, 2013, which one of the following statements is not valid for the…

Under Section 63(2) of the Companies Act, 2013, no company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares unless: (a) it is…

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Under Section 63 of the Companies Act, 2013, which one of the following statements is not valid for the issue of bonus shares?

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Answer and explanation

Correct answer C

Under Section 63(2) of the Companies Act, 2013, no company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares unless: (a) it is authorised by its articles of association (not its memorandum of association); and (b) it has, on the recommendation of the Board, been authorised in the general meeting of the company. Further, Section 63(1) permits bonus shares to be issued out of free reserves, the securities premium account, or the capital redemption reserve account, and Section 63(3) expressly mandates that bonus shares shall not be issued in lieu of dividend. Therefore, the statement that a bonus issue must be authorised by the memorandum of the company is not valid.

Option feedback

Option A

Incorrect (this is a valid statement). Under Section 63(1) of the Companies Act, 2013, a company may issue fully paid-up bonus shares to its members out of its free reserves, the securities premium account, or the capital redemption reserve account.

Option B

Incorrect (this is a valid statement). Under Section 63(3) of the Companies Act, 2013, bonus shares shall not be issued in lieu of dividend.

Option C

Correct (this statement is not valid). Under Section 63(2)(a) of the Companies Act, 2013, the issue of bonus shares must be authorised by the company's articles of association, not its memorandum of association.

Option D

Incorrect (this is a valid statement). Under Section 63(2)(b) of the Companies Act, 2013, a bonus issue must, on the recommendation of the Board, be authorised in the general meeting of the company.

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