Whenever the Company requires fund for its projects, it issues shares to the public for subscription. the Companies can acquire huge amount of investment by public issues of shares without incurring heavy expenses and fixed financial charges. Few Companies might want to increase its share capital base so as to avoid unwanted hostile takeovers and also not to increase the share capital in the monetary terms than companies issue and allot Bonus shares. Bonus shares are issued to the existing shareholders only against the shares held by them in predetermined exchange ratio.

Whenever the Company needs fund it either utilizes its reserves or issues and allots further shares to either existing shareholders or to the public. Primarily, issues can be classified as a Public, Rights or preferential issues (also known as private placements). While public and rights issues involve a detailed procedure, private placements or preferential issues are relatively simpler. For a private company the section provides that a private company may issue securities by way of rights issue or bonus issue in accordance with the provisions of this Act.