A bonus issue is a stock dividend, allotted by the company to reward the existing shareholders without receiving any additional payment from them, it is known as issue of bonus shares

1. DR. RICHA SINGHAL
ASSOCIATE PROFESSOR
DEPTT. OF EAFM
S.S.JAIN SUBODH P.G. COLLEGE

2. ISSUE OF
SHARES
 Companies generate funds from public and other options by issuing
the shares. The fund is beneficial as the company does not have to
pay the interest as in case of loans. Only dividend is to be distributed
depending upon the profits. The different ways of issuing shares have
its own benefits. You should know about the types and the
fundamentals behind them as an investor.
 The different types of shares issues is based upon the who are the
perspective investors, purpose of the company like to generate funds
or for the benefit of its shareholders.

3. • The shares are offered for sale in order to raise capital from
the general public, for which the company issues a
prospectus.
PUBLIC ISSUE
• In a right issue, shares or convertible securities are offered
to the existing shareholders at a concessional rate, on a
stipulated date, fixed by the company itself.
RIGHT ISSUE
• It is the free additional shares distributed to the current
shareholders in the proportion of the fully paid-up equity
shares held by them on a particular date.
BONUS ISSUE
• If a company offers shares to a selected group of investors
which can be mutual funds, banks, insurance companies,
pension funds and so forth, to raise capital, is called private
placement
PRIVATE
PLACEMENTS
TYPES OF SHARE ISSUE

4. BONUS
ISSUE
4
 A bonus issue is a stock dividend, allotted by the
company to reward the existing shareholders without
receiving any additional payment from them, it is
known as issue of bonus shares.
 Bonus Shares are issued to the equity shareholders in
proportion to their holdings of equity share capital of
the company, a shareholder continues to retain his/ her
proportionate ownership of the company.
 Issue of bonus shares results in the conversion of the
company’s profits into share capital. Therefore, it is
termed as “Capitalization of Company’s Profits.”
 It does not affect the Total Capital Structure of the
Company.

5. GUIDELINES OF
SEBIREGARDING
ISSUEOFBONUS
SHARES
 These guidelines shall be applicable only to the listed
companies.
 Bonus shares cannot be issued within a period of 12 months
of Public/ Right issue.
 Bonus shares can be issued only from free reserves. The
reserves can be created from profits or share premium. It
cannot be created by revaluating fixed assets.
 Bonus shares cannot be issued as in lieu of dividend.
 Bonus shares can be issued only after being made up partly
paid shares to fully paid up shares.
 Bonus shares should be issued within 6 months from the
date of recommendation of Board of Directors.
 The Articles of Association of the company must contain
provision regarding issue of bonus shares.
 The proposal in this regard should be passed in annual
general meeting.
 The issue of bonus shares should not affect the rights of
debenture holders.

6. SOURCESOF
BONUSSHARES
 Current year’s profits
 Past accumulated profits
 General reserve
 Dividend Equalisation Reserve
 Debenture Redemption Fund
 Capital Profit or Capital Reserve
 Capital Redemption Reserve (CRR A/C)
 Securities Premium Account

7. ADVANTAGES
OFBONUS
SHARES
TO COMPANY
• Conservation of cash
• Keeps the EPS at a reasonable
level
• Increase the MPS
• Enhances prestige of the company
• Financing its projects
• Retention of managerial control
• Important for long term
investment.
• To reduce dividend rate
• Diffusion of ownership
• Economical issue of Securities.
TO THE
SHAREHOLDERS
•No tax on Dividend
income.
•Indication of higher
future profits
•Increase in future cash
dividend
•High psychological value

8. DISADVANTAGES
OFBONUS
SHARES
TO THE COMPANY
• Bonus share sale
reduces the stake in
company.
• Company’s ability to
raise cash reduces.
• Increase the liability
of dividend for the
future years.
TO THE
SHAREHOLDERS
• Does not give extra
wealth to investors.
• Does not help them in
providing fund for
their day to day
needs.

9. THANKS