Why is bonus issue done?

Bonus issues are given to shareholders when companies are short of cash and shareholders expect a regular income. Shareholders may sell the bonus shares and meet their liquidity needs. Bonus shares may also be issued to restructure company reserves. It increases the company’s share capital but not its net assets.

Why a company may make a bonus issue of shares?

Companies issue bonus shares to encourage retail participation and increase their equity base. When price per share of a company is high, it becomes difficult for new investors to buy shares of that particular company. Increase in the number of shares reduces the price per share.

What are the conditions for issue of bonus shares?

Conditions for Issue of Bonus Shares The issue of bonus shares must be authorized by the Articles of the company. The issue of bonus shares must be recommended by the resolution of the Board of Directors. Also this recommendation must be later approved by the shareholders of the company in the general meeting.

What is the minimum time duration between two bonus issue?

Answer: (2)The listed entity shall give notice in advance of at least seven working days (excluding the date of intimation and the record date) to stock exchange(s) of record date specifying the purpose of the record date; (3)The listed entity shall ensure the time gap of at least thirty days between two record dates.

Who are eligible for bonus shares?

Bonus shares are available to shareholders who own the firm’s stock prior to the record date and the ex-date determined by the company. For the delivery of shares in India, the T+2 rolling system is used, in which the ex-date is two days before the record date.

What must be the period between the two bonus issues?

Bonus Shares can be issued only after a period of 12 months from the issue of shares for consideration. It has to be issued as Fully Paid, and only 2 bonus issues can be made in a period of 5 years. The balance of reserves after the bonus issue should work out to be 40% of the post issue capital.

Is valuation required for bonus issue?

The company issued one Bonus Share for every five shares held by the Equity Shareholders. You are asked to compute the value of each Equity Share before and after the issue of Bonus shares of the company.