Pdf impact of corporate bonus issue action on stocks in india. The bonus shares are issued out of the reserves of the company. To approve the number, price and the proportion of the shares to be issued as bonus shares. These are free shares that the shareholders receive against shares that they current. Procedure for bonus issue of shares companies act 20.
Companies were following the norms prescribed by the controller of capital issues. On the other hand, the issue of bonus shares is like payment of dividend by the company in the form of shares. There is no impact on the classes of shares that a company has in issue or the class rights attached to those shares. Once sebi came into existence and controller of capital issues were abolished, unlisted private limited companies and public limited companies were free to issue bonus shares if there were. Complete information about bonus shares, sebi guidelines. Receipt of bonus shares not subject to tax under section. Bonus shares are shares issued to shareholders of a company free of any cost bonus issue is also known as scrip issue and scrip dividends explanation. Understand the provisions relating to issue of bonus shares.
After the bonus issue, the number of outstanding shares increases and the eps falls by the same extent. The complete information about the bonus shares, sebi guidelines and its reserves for issue of bonus shares are explained below. A bonus issue of shares is stock issued by a company in lieu of cash dividends. A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders. These are companys accumulated earnings which are not given out in the form of. Studies carried out in the effect of bonus issue on the value of a firm indicate more or less that in the long run bonus issues do not have any effect on the value of the firm and hence no long term effect on the share price baker, 1958. In order to issue the bonus shares an unlisted company must follow the following procedural steps. The issue of bonus shares must be authorized by articles of association of. The tcs board of directors board at its meeting held on april 19, 2018 recommended bonus issue of equity shares in the ratio of 1 one equity share of re. Pdf accounting for bonus issue learning objectives mahen. Bonus shares are shares distributed by a company to its current shareholders as fully paid shares free of charge to capitalise a part of the companys retained earnings. A bonus share is a free share of stock given to current shareholders in a company, based upon the number of shares that the shareholder already owns. Conference paper pdf available march 2012 with 1,901 reads. The issue of bonus shares refers to a good method of capitalizing huge profits or reserves with the company, however, the company may capitalize its profits or reserves by issuing fully paid shares only if the articles of the company so permit.
Therefore, the government has decided that the public enterprises, which are carrying substantial. Face value of a share is its value that is printed on the share certificate. Sebi guidelines on issue of bonus shares corporate law forum. Objective influences of the professional investors with their longer term view has a healthy influence on. Bonus shares, section63 of companies act20 definition. A bonus or rights issue uses the savings of existing shareholder. The supporting documents include board minutes and a shareholders resolution. Companies may issue bonus shares by capitalising their free reserves out of general reserves. Bonus shares are issued by companies in lieu of paying a cash dividend. Difference between right shares and bonus shares with. As an alternative to cash dividends, companies at times give away free shares to their shareholders when they are short of cash and dont want to upset shareholders that expect a regular income. While this stock action increases the number of shares owned, it does not increase the total value.
Section 63 deals with issue of bonus shares and states that a company may issue fully paidup bonus shares to its members, in any manner whatsoever, out of slide 6. The bonus shares subfolder contains a guidance note and several supporting documents. Companies issue bonus shares to encourage retail participation and increase their equity base. Our guidance note is a practical guide to bonus shares and takes the reader through what bonus shares are, why they are issued and the procedure for issuing them. Share premium is a capital profit, which is recorded in the balance sheet under that reserves and surplus. For that bonus issue record date was 27nov2009 and exdate happened to be on 26nov2009. Introduction of bonus shares bonus issue means offer of free additional shares. Right shares encompass selling shares in the primary market, by issuing the rights to the current shareholders. One particular area i found myself tripping up on was the difference between a rights issues and bonus issues of shares. Instead of paying out a companys profits as dividends, the money is used to distribute further shares to shareholders. Sometimes a company cannot pay dividend in cash due to shortage of liquid fundsviz. Bonus issue a bonus issue is a stock dividend, allotted by the company to reward the shareholders. Easiest way would seem to be company issue say 97 bonus shares to rank parri passu with existing shares and client acquires 75 of total issued share capital. This chapter deals with the accounting for share capital of companies.
It is a sign that companies are increasing their profitability. Shareholders can sell the shares to meet their liquidity needs. However, the capitalisation of profits is termed as issue of bonus shares. If you look back, many companies have announced issues of bonus shares to their shareholders by capitalizing their free reserves. The bonus issue enthusiasts may argue that this fall in market price is likely to be much less than 33. Bonus issues list of companies issing bonus shares, bonus. Bonus paid to the shareholders can be either cash bonus or capital bonus. Liquidity cash position of the company will remain unaltered with the issue of bonus shares because issue of. Provided that no issue of bonus shares shall be made by.
A company may make a bonus issue of securities or redeemable shares without receiving new consideration to an equivalent value in return. It is a predetermined date after the record date on which the share price is adjusted on stock exchanges according to the bonus ratio. That is total 800 shares for free and his total holding will increase to shares. Therefore, the total value of equity shares post issuance of bonus shares remained the same. There was no specific section under the companies act, 1956 dealing with bonus shares. It may also go in for a rights issue of equity shares. With this in mind, our existing board minutes have been updated and added to a brand new sub. Bonus shares, in the long run would create enormous wealth for the investor. Impact of companies act 20 and rules on bonus issue of shares. A bonus issue of shares also known as a script issue is quite simply an issue of ordinary shares to existing shareholders at no additional cost. Last bonus issue was announced on 07oct2009 in the ratio of 1. Before 2009 reliance announced bonus share on sep1997 in the ratio of same 1. Issue of bonus shares under companies act, 20 taxguru.
Five important differences between right shares and bonus shares are explained in this article in detail. When price per share of a company is high, it becomes difficult. After issuing bonus shares, more capital will be available and hence more capital can be utilised for more expansion works. The ratio under which shares were issued through the bonus issue was 2 additional shares for every existing share held. Section 63 of companies act, 20 issue of bonus shares. You will receive bonus shares only if you hold shares of that company in your demat account on this date.
Bonus shares are the shares allotted to existing equity shareholders without any consideration being received from them, in cash or in kind. Issue of bonus shares will increase the companys cash flow but the net asset. A bonus issue of shares also known as a capitalisation or scrip issue is an issue of new shares to existing shareholders in the same proportion as their existing shareholding. Free shares of stock given to current shareholders, based upon the number of shares that a shareholder owns. They are issued to capitalize profits of the company. Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. Pdf bonus issue is the one of the corporate action where companies issue the stocks to existing shareholders at a free of cost. Here is a run down on the difference between the two. The effect of bonus share issues on stock prices of. Shareholders have benefited tremendously, even after accounting the inevitable reduction in share prices postbonus, since. For example, if the price before bonus is rs 200 and a company issues bonus shares in the ratio of 1. Bonus shares can be issued only if articles of association permit such an issue.
Share premium share premium is the amount received by a company over and above the face value of its shares. Convene the board meeting and pass the following resolutions. The bonus shares shall not be issued in lieu of dividend. Bonus issuesfind the complete list of companies issue with bounus, corporate action, bonus declared by companies shares and other stock market news and updates at the financial express.
This is due to the fact that since the total number of shares increases, the ratio of number of shares held to number of. As with any form of wealth transfer, these also have their own advantages and disadvantages. Query is what are the tax consequences on both the individuals in receipt of the bonus shares and the company. While the issue of bonus shares increases the total number of shares issued and owned, it does not increase the value of the company. Tax consequences of issuing bonus shares accountingweb. The issue of bonus shares helps in bringing about at proper balance between paid up capital and accumulated reserves, elicit good public response to equity issues of the public enterprises and helps in improving the market image of the company. Further, it also observed that bonus issue was detrimental to the shareholder in terms of value per share, which was counterbalanced by the additional number of bonus shares received. Bonus issue of shares meaning, benefits and motives. A company gives cash bonus to its shareholders only when it has larger reserves and sufficient cash to pay bonus. A bonus issue or scrip issue is a stock split in which a company issues new shares without charge in order to bring its issued capital in line with its employed. Articles must contain provision for issue of bonus shares, capitalization of. Where rights to dividends on existing shares are expressed by reference to their par value, for example, some preference shares, the transitional provisions in the new co will apply to give affect as if their par value still exists. Hi there neither bonus shares nor a stock split have any effect on the value of your holding, but since the number of shares outstanding increases, the market price per share will decrease in the same proportion.
There are two parties involved, the issuing company and the shareholder or investor, and we discuss the advantages and disadvantages from the point of view of both. Issue of bonus shares effective from 1st april, 20141 a company may issue fully paidup bonus shares to its members, in any manner whatsoever, out of i its free reserves. For instance, if investor a holds 200 shares of a company and a company declares 4. Tips for investing in bonus issues on stock markets. Subject to the provisions of the companies act, 1956 or any other applicable law for the time being in force, a listed issuer may. What is the effect of the issue of bonus shares on a. They have undergone the study by t aking a large sample of 665 indian companies for the time period. Provided that no issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.
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