Companies issue bonus shares to encourage retail participation, especially when the company’s price per share is very high, and it becomes tough for new investors to buy shares. By issuing bonus shares, the number of outstanding shares increases, but each share’s value reduces, as shown in the example above.
Types of Bonus Shares
- Fully Paid Bonus Shares.
- Partly-Paid Up Bonus Shares.
Bonus Shares and Right Shares: The Right Shares refers to those issues of shares which a company offers to their existing shareholders at a discounted price. … On the other hand, bonus shares refer to the shares which are issued free of cost to their shareholders on a specified date by the companies.
By Issuing bonus shares the number of outstanding shares in the market increases and at the same time value of each share decreases according to the bonus issue ratio but if more demand generates the share price can rise more than the decided post bonus price.
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.
Companies issue bonus shares to encourage retail participation and increase their equity base. When price per share of a company is high, it becomes difficult for new investors to buy shares of that particular company. Increase in the number of shares reduces the price per share.
Why does a company issue bonus shares? A company issues bonus shares to increase liquidity of the stock and increase participation of investors. Secondly, the stock price drops to a reasonable range post a bonus issue, which makes it affordable for investors to purchase more shares.
Advantages Of Bonus Shares
It is beneficial for the long-term shareholders of the company who want to increase their investment. … Bonus shares increase the outstanding shares which in turn enhances the liquidity of the stock. The perception of the company’s size increases with the increase in the issued share capital.
Which is better dividend or bonus?
A bonus issue is considered as an alternative by many companies to dividends. In dividends, a company gives out extra money to shareholders from its net profits, in a bonus issue the shareholders are given extra shares. It increases the share capital of the company and makes it attractive for investors.
Bonus
| COMPANY | Bonus Ratio | DATE |
|---|---|---|
| GEE | 1:10 | 22-09-2021 |
| APL Apollo | 1:1 | 18-09-2021 |
| Apollo Tricoat | 1:1 | 18-09-2021 |
| TPL Plastech | 1:1 | 18-09-2021 |
Bonus Shares are being issued on the recommendation of the Board and been authorized in the general meeting of the company; … The partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up; 6.