Finance Learners

In the world of finance and corporate restructuring, companies have several mechanisms to adjust their capital structure, one of which involves changing the number of outstanding shares. Two common methods for achieving this are Bonus Issues and Stock Splits. While both result in an increase in the number of shares outstanding, they differ in their purpose, execution, tax implications, and effects on the company's valuation. The following are the main differences between a bonus issue and a stock split: 1. Defining Bonus Issue and Stock Split Before delving into the nuances, it is important to clearly define what a bonus issue and a stock split are. Bonus Issue (or Scrip Issue): A bonus issue refers to the distribution of additional shares to existing shareholders at no extra cost, based on the number of shares they already hold. It is typically made out of the company's accumulated profits or reserves, and shareholders receive these shares in proportion to their existing h...

A bonus issue, also known as a capitalization issue or a scrip issue, is a process in which a company issues new shares to its existing shareholders at no charge. In this type of issue, the company does not receive any cash proceeds from the issuance of shares. Instead, the new shares are typically distributed to shareholders in proportion to the number of shares they already own. The primary objective of a bonus issue is not to raise capital but to reward existing shareholders and adjust the share price in a way that makes the stock more attractive to a wider pool of investors. The concept of a bonus issue originates from the company’s need to manage its reserves and distribute its profits in a way that benefits its shareholders. In essence, a company capitalizes part of its reserves—either from retained earnings, profits, or other surplus funds—and issues shares to its shareholders instead of paying dividends in cash. For example, a company might declare a 1:5 bonus issue, meaning t...

A bonus issue, also referred to as a scrip issue, is a financial strategy that companies use to distribute additional shares to their existing shareholders. This method involves issuing shares for free, based on the proportion of shares that a shareholder already owns in the company. The bonus shares are typically issued in a fixed ratio to the number of shares that the shareholder currently holds. For example, a company may announce a bonus issue of one-for-six, which means that for every six shares an investor owns, they will receive an additional share for free. Bonus issues are generally seen as a sign of a company's financial health and can be a way to reward shareholders without requiring any additional capital from them. The primary motivation behind a bonus issue is often to increase the liquidity of a company's shares, making them more accessible and affordable to a larger number of investors. By issuing additional shares, the company can reduce the market price of it...

What is the difference between bonus issue and right issue? Both bonus issues and rights issues are methods through which a company can raise additional capital or restructure its equity base, but they are fundamentally different in terms of how they are structured and the implications for both the company and its shareholders. For bonus issue, new shares are issued by transferring company's reserves into share capital. The number of free shares is usually distributed pro rata to existing stockholder. For example, if a company declares a one for three bonus issue, it means that for every 3 shares held, a shareholder will receive one free share. A rights issue is an issue of new shares to existing shareholders at a price that is lower than the market price listed in the stick exchange, and therefore making it attractive to the existing shareholders. Below is a detailed comparison of these two methods of issuing shares: 1. Definition and Purpose Bonus Issue (or Scrip Issue): A bonus ...

In the world of corporate finance, companies often need to raise capital to fund various initiatives, such as expanding operations, acquiring assets, or reducing debt. One of the most common methods for a company to raise funds is by issuing shares. Shares represent ownership in a company, and issuing them allows a company to attract investors who are willing to provide capital in exchange for a stake in the business. There are several methods available for a company to issue shares, each with its own set of advantages, disadvantages, and implications for both the company and its shareholders. Here, we will explore the five most common methods of share issuance: public issue, offers for sale, private placements, bonus issues, and rights issues. A public issue is one of the most common and widely recognized methods for a company to issue shares. In a public issue, a company invites the general public to purchase shares of its stock. This process typically takes place through a formal o...