Table of Contents
- 1 Why do businesses make bonus share issues?
- 2 When a company issues bonus shares how does it impact the balance sheet?
- 3 What is the difference between stock split and bonus issue?
- 4 Can a company issue bonus shares without Capitalisation of profit?
- 5 Does bonus issue affect share price?
- 6 What happens when a company issues bonus shares?
- 7 What is a 3 for 2 bonus issue?
There are various reasons why a company may decide to issue bonus shares: Alternative to paying a dividend – rather than paying out cash dividends to shareholders, a company can instead issue bonus shares. Trading – since the total number of shares increases, this can encourage active trading.
The effect of a bonus issue in a company’s balance sheet is to transfer a sum equivalent to the nominal value of the bonus shares from ‘profits for distribution’ to ‘share capital’. The company therefore keeps capital within the business, rather than having to pay it out as a dividend.
Which company gives bonus share every year?
Bonus
COMPANY | Bonus Ratio | DATE |
---|---|---|
Record | ||
Kewal Kiran | 4:1 | 17-12-2021 |
Panchsheel Org | 1:1 | 07-12-2021 |
IEX | 2:1 | 06-12-2021 |
What is the difference between stock split and bonus issue?
When a stock is split, there is no increase or decrease in the company’s cash reserves. In contrast, when a company issues bonus shares, the shares are paid for out of the cash reserves, and the reserves deplete.
Section 56 (2) (vii) Income Tax Act does not apply to the issue of Bonus shares because there is a mere capitalization of profits by the issuing company and there is neither an increase or decrease in the wealth of the shareholder as his percentage holding remains constant.
Which company will issue bonus shares in 2021?
Bonus
COMPANY | Bonus Ratio | DATE |
---|---|---|
Apollo Tricoat | 1:1 | 16-09-2021 |
Kanpur Plast | 1:2 | 15-09-2021 |
Mahindra Life | 2:1 | 14-09-2021 |
Mahindra Holida | 1:2 | 08-09-2021 |
Because issuing bonus shares increases the issued share capital of the company, the company is perceived as being bigger than it really is, making it more attractive to investors. In addition, increasing the number of outstanding shares decreases the stock price, making the stock more affordable for retail investors.
Shareholders may sell the bonus shares and meet their liquidity needs. Bonus shares may also be issued to restructure company reserves. Issuing bonus shares does not involve cash flow. It increases the company’s share capital but not its net assets.
See our guide on the difference between stock split and bonus issue. Companies usually issue bonus shares to encourage retail participation and increase their equity base. If the share price of a company becomes much higher, issuing bonus shares reduces the price per share while retaining the company’s capital structure.
Why are bonus issues seen as a positive action?
People view bonus issues as a positive action, but I’m not sure why that is. As soon as the number of shares increase, the value of each share goes down in value, so theoretically there are no gains to be had just because of a bonus issue.
What is a 3 for 2 bonus issue?
For example, a 3 for 2 bonus issue would entitle each shareholder 3 shares for every 2 shares already held by them before the issue. e.g. A shareholder having 1000 shares would therefore receive 1500 bonus shares (1000 x 3 ÷ 2).