Section 378ZJ of the Companies Act, 2013 deals specifically with the issue of bonus shares by a Producer Company. Bonus shares are additional shares issued by a company to its members free of cost from its accumulated profits or reserves, primarily to capitalize a portion of the surplus.

In the context of a Producer Company, which is formed by farmers, producers, or similar stakeholders, bonus issues help in equitably distributing profits while strengthening the capital base.

Legal Provision Section 378ZJ

The provision allows a Producer Company to issue bonus shares proportionate to the existing shareholding, through:

• Recommendation by the Board, and
• Approval by the Members via resolution at a general meeting.

Such bonus shares must be fully paid up and issued by capitalizing the General Reserves (not other reserves or securities premium, unlike Section 63).

Key Legal Phrase: “…capitalizing its general reserves…”
This restricts the source to only general reserves — unlike other companies.

Key Provisions and Requirements

When Can a Producer Company Issue Bonus Shares?

A Producer Company may issue bonus shares in the following conditions:

1. Adequate Free Reserves: The company has accumulated general reserves and wishes to convert them into share capital.
2. Board Recommendation: The Board must recommend the bonus issue.
3. General Meeting Approval: Members must approve the issue through a resolution.
4. No Default in Dues: The company should not be in default in payment of statutory dues or member dues.
5. Authorisation in Articles: The Articles of Association must permit the issue of bonus shares.

Process of Issuing Bonus Shares by Producer Company

Here is a step-by-step guide to the process:

✅ Step 1: Board Meeting

• Hold a Board Meeting to consider and approve the proposal for issue of bonus shares.
• Pass a resolution recommending the issue and fixing the proportion, record date, and calling a General Meeting.

✅ Step 2: Notice of General Meeting

• Send a notice of General Meeting to all members along with an explanatory statement as per Section 102 of the Act.

✅ Step 3: Hold General Meeting

• Pass a special or ordinary resolution (depending on Articles) to approve the bonus issue.

✅ Step 4: File e-Form MGT-7A & MGT-14 (if applicable)

• File the resolution with ROC using Form MGT-14 (if required).
• Include board and shareholder resolution details.

✅ Step 5: Issue of Bonus Shares

• Finalize list of eligible members as per record date.
• Issue the bonus shares to members in the proportion approved.
• Update Register of Members and issue share certificates or demat credits.

✅ Step 6: ROC Compliance

• File Return of Allotment in Form PAS-3 with Registrar within 30 days of allotment.

Board Resolution

“RESOLVED THAT pursuant to Section 378ZJ of the Companies Act, 2013 and subject to the approval of members, the Board recommends issue of fully paid-up bonus shares in the ratio of 1:1 to the members by capitalizing the sum of ₹ 1 Lakh from the General Reserves.”

📝 Shareholders’ Resolution

“RESOLVED THAT pursuant to the provisions of Section 378ZJ of the Companies Act, 2013 and Articles of Association of the Company, consent of the members be and is hereby accorded to the Board’s proposal to issue bonus shares in the ratio of: from general reserves.”

Time Limit for Bonus Issue

⛔No specific time limit is given in Section 378ZJ, but general provisions under Companies Act regarding filing and allotment apply.

Difference Between Bonus Issue – Section 63 vs 378ZJ