WHAT ARE BONUS SHARES? HOW DO PUBLIC COMPANIES ISSUING BONUS SHARES TO EMPLOYEES NEED TO ENSURE OWNERS’ CAPITAL?

What are bonus shares? How should a public company issue bonus shares to employees ensure equity capital? If a public company issues bonus shares, does it need to open a escrow account to receive money to buy shares? Through today’s article, let’s learn more about this issue with Pham Consult!

Pursuant to Clauses 1 and 2, Article 4 of the Securities Law 2019 explains as follows:

Explanation of words

In this Law, the following terms are understood as follows:

1. Securities are assets, including the following types:

a) Stocks, bonds, fund certificates;

b) Warrants, covered warrants, share purchase rights, depository certificates;

c) Derivative securities;

d) Other types of securities prescribed by the Government.

2. Stock is a type of security that confirms the legal rights and interests of the owner of a portion of the share capital of the issuing organization.

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Accordingly, shares are explained as a type of security that confirms the legal rights and interests of the owner with respect to a portion of the equity capital of the issuing organization.

Currently, there is no legal document that specifically defines “Bonus Shares”. Therefore, bonus shares can be understood as shares that companies issue to pay people who have contributed greatly to the operation and construction of that company.

This is a form of cash replacement reward that is favored and commonly applied by businesses today.

Besides, the main purpose of this form is to increase charter capital, helping businesses have better business resources.

Note: This information is for reference only.

According to Clause 4, Article 64 of Decree 155/2020/ND-CP regulating conditions for public companies to issue shares according to the selection program for employees in the company.

Accordingly, in case of issuing bonus shares to employees, a public company must ensure sufficient equity capital to increase share capital, specifically as follows:

– Owner’s capital used to issue bonus shares to employees is based on the most recent financial statement audited by an approved auditing organization, including the following sources:

+ Share capital surplus;

+ Development investment fund;

+ Undistributed after-tax profits;

+ Other funds (if any) are used to supplement charter capital according to the provisions of law;

– In case a public company is a parent company that issues shares to reward employees from surplus capital, development investment funds, or other funds, the capital source for implementation is based on the financial statements of the company. holding company;

– In case a public company is a parent company that issues shares to reward employees from undistributed after-tax profits, the profit decided to use to reward employees must not exceed the profit level. undistributed after tax on the audited consolidated financial statements.

In case the profit decided to use to reward employees is lower than the undistributed after-tax profit on the consolidated financial statements and higher than the undistributed after-tax profit on the company’s separate financial statements parent company, the company can only make distribution after transferring profits from subsidiaries to the parent company.

Note: In case the company issues bonus shares to employees, the total value of the above sources must be no lower than the total value of additional equity capital according to the plan approved by the General Meeting of Shareholders.

Pursuant to Article 64 of Decree 155/2020/ND-CP regulating conditions for public companies to issue shares according to the selection program for employees in the company as follows:

Conditions for a public company to issue shares according to an option program for employees in the company

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6. The issuing organization must open a escrow account to receive money to buy shares from employees, except in the case of issuing bonus shares to employees.

7. The issuance of shares meets the regulations on foreign ownership ratio as prescribed by law in case of issuance to employees who are foreign investors.

8. Issued shares are restricted from transfer for at least 01 year from the date of completion of the issuance.

9. Conditions specified in Clause 4, Article 60 of this Decree.

According to this regulation, when issuing shares under an employee stock option program, a public company must open a escrow account to receive money to buy shares from employees, except in the case of issuing bonus shares. for workers.

Thus, in case a public company issues bonus shares to employees, there is no need to open a blocked account to receive money to buy shares.

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