This statement is False. Issue of bonus share is not compulsory. The company issues bonus share when they are short of cash. Bonus shares are issued to restructure company's reserve without diluting the ownership/holding of existing members. The following are some of the conditions necessary for issuing Bonus Shares.
Conditions for issue of Bonus Shares
1. The issue of bonus shares must be authorized by Articles of Association of the company. If it is not provided, the company should pass a resolution in its shareholders meeting making provision in the Articles for issuing bonus shares.
2. It must be recommended by a board resolution and then approved by the shareholders in general meeting.
3. The bonus issue is made out of free reserves built out of genuine profits or share premium collected in cash.
4. Reserves created by revaluation of fixed assets are not capitalized for bonus shares.
5. The bonus issue is not made unless the partly paid-up shares, if any existing is made fully paid-up.
