What is Bonus Shares?
Bonus shares are free additional shares
that are issued to existing shareholders based on the amount of shares they
own. Rather than being given as dividends, the company's cumulative earnings
are turned into free shares.
For instance, if a firm offers one bonus
share for two shares, an existing shareholder will receive one more shares for
two existing share.
Let’s assume that a shareholder owns 1,000
shares in the company. He will receive 500 bonus shares when the firm releases
bonus shares, i.e. (1000 * 1/2 = 500).
The terms "record date" and
"ex-date" are used when the corporation issues bonus shares to its
shareholders. Let's look at what the terms "record date" and
is the record date of bonus shares?
The record date is the cut-off date set by
the corporation for bonus shares eligibility. The corporation will issue bonus
shares to all shareholders who have shares in their Demat account on the record
is Ex-Date of bonus shares?
The record date is one day prior than the
ex-date. To be eligible for bonus shares, an investor must purchase the shares
at least one day before the ex-date.
following are the two different types of bonus shares:
1) Bonus shares that are fully paid
2) Bonus shares that are partly paid
Shares that are fully paid
Fully paid bonus shares are those that are
distributed at no additional expense in proportion to the amount of stock held
Bonus shares of this type can be obtained
from the following sources:
Profit and loss account
Security Premium Account
Capital redemption reserves
Shares that are paid partly
Let's start with a definition of a
partly-paid share before moving on to party-paid up bonus shares.
A partly paid share is one that has only
been partially paid in comparison to the full issue price. It means that an
investor can purchase partially paid shares without having to pay the entire
However, when the corporation makes calls,
the remaining sum for partially paid shares can be paid in installments.
When a bonus is applied to partly-paid
shares and changed into fully paid shares without calling out the uncalled
amount through profit capitalization, partially-paid up bonus shares are
Partly paid-up bonus shares, on the other
hand, cannot be issued through a capital redemption reserve account or a
security account, unlike fully paid-up bonus shares.
of Bonus Shares
the viewpoint of the Investor's
1) When investors receive bonus shares from
the corporation, they are not required to pay any taxes.
2) Bonus shares are useful to long-term
shareholders who want to increase the value of their investment.
3) Bonus shares are issued by the company
at no cost to shareholders, increasing the number of outstanding shares of an
investment in the company and increasing the stock's liquidity.
4) Bonus shares contribute to an investor's
trust in the firm's business and operations by allowing the investor to
participate in the company and receive capital in return.
the viewpoint of the company
1) The issuance of bonus shares boosts the
company's worth and improves its market position and image, earning the trust
of existing shareholders and attracting a number of small investors to the
2) With the issuance of bonus shares on the
market, the companies have more free-floating shares.
3) The issuance of bonus shares helps
corporations get out of situations where they are unable or unwilling to pay
cash dividends to their shareholders.
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