Bonus Shares Nepal procedures are frequently questioned by listed companies and investors seeking to understand capital reserve utilization. Are you uncertain about how bonus shares are issued, what legal requirements apply, or how the new SEBON tax liability rules affect the process? Understanding Bonus Shares Nepal requirements is essential because this mechanism allows companies to reward shareholders without cash outflow while signaling financial strength and improving market liquidity.
The Bonus Shares Nepal framework is established under Section 179 of the Companies Act, 2063 and regulated by the Securities Board of Nepal (SEBON). This mechanism involves capitalizing retained earnings or reserves to issue additional shares to existing shareholders free of cost. Consequently, shareholders receive extra shares proportionate to their holdings without any payment, while companies conserve cash for operational needs.
Furthermore, recent SEBON amendments have fundamentally changed tax liability procedures, making companies responsible for dividend tax on bonus shares. Additionally, the 10th Amendment to Securities Issuance and Allotment Guidelines, 2082, has streamlined regulatory compliance. This comprehensive tutorial is presented to clarify every aspect of Bonus Shares Nepal procedures.
Bonus Shares Nepal refers to additional shares issued to existing shareholders by capitalizing savings earned from profits or reserve funds. Governed by Section 179 of the Companies Act, 2063, this process converts retained earnings or reserves into share capital, increasing the total number of shares outstanding without changing shareholders' proportional ownership.
Moreover, Bonus Shares Nepal serves multiple strategic purposes. Companies utilize this mechanism to reward loyal shareholders, improve stock liquidity by increasing floating shares, meet regulatory capital requirements (particularly for banks and insurers), and signal financial health to the market. As a result, bonus issues are often viewed positively by investors as indicators of sustainable profitability.
In addition, the definition under the Companies Act explicitly includes "the increase of the paid up value of a share by capitalizing the saving or reserve fund." Therefore, bonus shares may be issued either as additional shares or through increasing the face value of existing shares, though the former is standard practice in Nepal.
| Legislation | Key Provisions | Enforcing Authority |
|---|---|---|
| Companies Act, 2063 | Section 179: Bonus share issuance by special resolution | OCR |
| Companies Act, 2063 | Section 2(q): Definition of bonus shares | Legal definition |
| Securities Act, 2063 | Disclosure and allotment regulations | SEBON |
| SEBON Guidelines 10th Amendment, 2082 | Tax liability on dividend for bonus shares | SEBON |
| Income Tax Act, 2058 | Capital gains tax on sale of bonus shares | IRD |
Companies may capitalize various reserves to issue bonus shares. Therefore, understanding eligible sources is essential:
| Reserve Type | Utilization Priority | Conditions |
|---|---|---|
| Retained Earnings | Primary source | Must be distributable profits |
| General Reserve | Secondary source | Not earmarked for specific purpose |
| Share Premium | Tertiary source | As per Section 58 utilization rules |
| Capital Redemption Reserve | Specialized use | Created from buy-back proceeds |
| Revaluation Reserve | Conditional use | Requires asset realization |
The bonus share process is structured sequentially. Therefore, following these steps ensures compliance with Bonus Shares Nepal requirements:
The board of directors verifies:
The board passes a resolution recommending the bonus issue to shareholders. The resolution specifies:
Section 179 mandates special resolution (75% majority) at General Meeting:
Listed companies must notify SEBON and ensure:
The company determines:
The 10th Amendment to Securities Issuance and Allotment Guidelines, 2082, has fundamentally altered tax obligations:
| Tax Type | Rate | Applicability |
|---|---|---|
| Dividend Tax (Bonus Shares) | 5% | Withheld at source by company |
| Capital Gains Tax (Short-term) | 7.5% | On sale within 365 days |
| Capital Gains Tax (Long-term) | 5% | On sale after 365 days |
Proper documentation ensures regulatory compliance. Therefore, the following documents are required:
| Document | Purpose | Prepared By |
|---|---|---|
| Board Resolution | Corporate approval for bonus issue | Company Secretary |
| Special Resolution | Shareholder authorization | General Meeting |
| Reserve Verification Report | Confirmation of available reserves | Statutory Auditor |
| SEBON Notification | Regulatory disclosure | Company |
| Record Date Announcement | Public notice of eligibility cut-off | Company/NEPSE |
| Allotment Basis | Methodology for share distribution | Share Registrar |
| DEMAT Credit Confirmation | Electronic share credit evidence | CDS & Clearing |
| Tax Payment Proof | Compliance with new SEBON requirement | Company/IRD |
Companies and shareholders derive multiple benefits from bonus issues:
Understanding distinctions helps companies select optimal distribution methods:
| Feature | Bonus Shares | Rights Issue | Cash Dividend |
|---|---|---|---|
| Shareholder Payment | None (free) | Discounted price | None (cash received) |
| Company Cash Flow | No impact | Inflow (capital raised) | Outflow (cash paid) |
| Reserve Utilization | Capitalization of reserves | Fresh capital injection | Profit distribution |
| Shareholder Approval | Special resolution | Ordinary/special resolution | Ordinary resolution |
| Ownership Dilution | None (proportional) | None if subscribed | None |
| Tax Treatment | 5% dividend tax (company paid) | No tax on issue | 5% withholding tax |
| Market Impact | Price adjustment downward | Price may decline | Price typically drops |
| Regulatory Complexity | Moderate | High (SEBON approval) | Low |
Bonus shares increase share capital by capitalizing reserves, while stock splits divide existing shares into smaller units without changing capital. Both increase share quantity but differ in accounting treatment and reserve impact.
Yes. Any company incorporated under the Companies Act, 2063 may issue bonus shares by special resolution, provided sufficient distributable reserves exist. Private companies follow the same Section 179 procedures but without SEBON listing requirements.
The share price theoretically adjusts downward proportionally. For example, a 1:1 bonus (100% issue) would halve the share price, maintaining the same market capitalization but with doubled shares outstanding.
Bonus shares themselves are not taxable at issuance. However, SEBON now requires companies to pay 5% dividend tax on bonus issues. When shareholders subsequently sell bonus shares, capital gains tax applies (5% for long-term, 7.5% for short-term holdings).
No. Sufficient distributable profits or eligible reserves must exist. Companies with accumulated losses cannot capitalize reserves for bonus issues until profitability is restored and losses are offset.
From board decision to listing, the process typically takes 2-4 months. SEBON compliance (for listed companies), shareholder meeting scheduling, and DEMAT processing contribute to the timeline.
No statutory maximum exists, but practical constraints apply. Excessive ratios may dilute earnings per share significantly and attract regulatory scrutiny. Ratios typically range from 10% to 100% (1:10 to 1:1).
No. Bonus shares are automatically credited to eligible shareholders' accounts. Unlike rights issues, no subscription or payment is required. Shareholders may subsequently sell the shares if they do not wish to hold them.
Yes. Bonus shares rank pari passu with existing shares, carrying identical voting rights, dividend entitlements, and other privileges from the date of allotment.
Companies must preserve: board and shareholder resolutions, reserve verification reports, allotment registers, SEBON correspondence, tax payment records, and updated share registers for minimum statutory periods.
Bonus Shares Nepal offers companies an efficient mechanism for shareholder rewards and capital structure optimization. Therefore, meticulous attention to reserve availability, regulatory compliance, and the new SEBON tax liability requirements ensures successful issuance.
Consequently, engagement of qualified company secretaries, statutory auditors, and legal professionals is recommended for complex bonus issues, particularly for listed companies navigating SEBON requirements. The recent regulatory changes enhancing company tax responsibility demonstrate SEBON's commitment to streamlined compliance.
For professional assistance with Bonus Shares Nepal, Attorney Nepal provides comprehensive corporate advisory services. Their team of capital markets specialists handles board resolutions, SEBON notifications, compliance management, and regulatory liaison to ensure seamless bonus share execution.
Contact Attorney Nepal today to execute your bonus issue with regulatory precision and strategic advantage.
February 15, 2026 - BY Admin