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Question
Explain the following term/concept:
Bonus shares
Solution
Bonus shares are fully paid shares issued free of cost to the existing equity shareholders in proportion to their shareholdings. Usually, financially sound companies issue Bonus Shares out of their accumulated distributable profits or reserves. Hence, as the profits or reserves are capitalised, it is also called ‘Capitalisation of Profits or Reserves’. A company cannot issue Bonus shares out of reserves created by the Revaluation of Assets. It also cannot issue Bonus Shares instead of paying dividends. Once the announcement for Bonus Shares is made by the Board of Directors, it cannot be then withdrawn.
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Answer in brief.
State the provisions related to Bonus Shares.
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| Group A | Group B |
| a) Bond holders | 1) Deals with acquisition and use of assets |
| b) IPO | 2) Declared in Annual General Meeting |
| c) Corporate finance | 3) Any issue after first-time public offer |
| d) Final dividend | 4) Deals with acquisition and use of capital |
| e) Preference shares | 5) First-time public offer |
| 6) Fixed rate of dividend | |
| 7) Owners | |
| 8) Fluctuating rate of dividend | |
| 9) Creditors | |
| 10) Declared in board meeting |
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