The correct answer is: A. Bonus shares cannot be issued except out of the profits of the company.
Bonus shares are shares issued by a company to its existing shareholders, without any additional payment from the shareholders. They are issued out of the company’s reserves, such as the general reserve or the capital redemption reserve.
Bonus shares can be issued either at par or at a premium. If they are issued at par, the shareholders do not need to pay anything extra for the shares. If they are issued at a premium, the shareholders need to pay the difference between the par value of the shares and the premium.
Bonus shares can be utilised for making partly paid up shares as fully paid up. This means that if a shareholder has partly paid up shares, the company can use the bonus shares to make the shares fully paid up.
The statement “Bonus shares cannot be issued except out of the profits of the company” is not correct because bonus shares can also be issued out of the company’s reserves.