Sharekhan Blog

What Are The Major Things You Need To Know About Bonus Shares?

  • Jul 11, 2023

These are frequently offered as bonus, when these corporations are unable to pay dividends to their shareholders. This might happen despite the fact that they made a good profit in that quarter due to retained earnings.

Let us look at some of the advantages of bonus shares that people need to understand.

  • To avoid paying a cash dividend, a corporation in financial distress distributes bonus shares to current owners. Companies offer bonus shares to boost the market share of equity shares. It makes the firm more appealing to investors and makes shares cheaper to them by decreasing the share price. This will help their company's shares to grow progressively.
  • A corporation issues bonus shares when it is not able to deliver a dividend to its stockholders owing to a lack of funds, despite having good earnings for that quarter. In such a circumstance, instead of paying dividends, the corporation offers bonus shares to its current owners. These shares are distributed to current shareholders based on their existing stake in the firm. Issuing bonus shares to current shareholders is also known as capitalization of profits since it is funded by the company's profits or reserves.
  • At the time of the bonus issue, all current shareholders of the corporation are entitled to receive bonus shares. When a corporation announces a bonus issue, it also announces the date (record date) on which the issuance will occur. Bonus shares will be awarded to all investors who were shareholders of the firm on the record date. Thus, giving them great benefits.
  • Like normal equity shares, bonus shares can be divided into fully paid-up and partially paid-up bonus shares. Fully paid-up shares are those in which the whole amount equals the share price that the corporation has demanded. These are re-distributed proportionally to the investors' ownership position in the company at almost no additional cost. While the company's owners make instalment payments for partially paid-up shares. However, partly paid-up shares have not been taken into consideration in India from a practical standpoint.
  • Bonus shares boost the company's issued share capital, making it appear more appealing to investors. On the market, bonus shares give additional revenue to owners, and investors are not required to pay the tax on bonus shares received. With more shares on the market, the price per share falls, making it more affordable to more investors. Thus, it helps a greater number of people to invest in companies. 

Now that you understand what bonus shares are, you may consider market circumstances, your financial goals, and your risk tolerance before attempting to profit from them. Bonus shares are well-known for the numerous benefits they bring, and owners should take advantage of them.

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