Bonus shares

COMPARATIVE STUDY ON BONUS SHARE & STOCK

SPLIT

PRESENTED BY:-Pratyush Kumar

Navajyoti Martha

Saturday, April 8, 2023 CLASS OF 2014 MBA-PM

BONUS SHARE• A bonus share is a free share of stock given to

current shareholders in a company, based upon the number of shares that the shareholder already owns.

• While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company. Although the total number of issued shares increases, the ratio of number of shares held by each shareholder remains constant.


• A bonus share issue is not a dividend. This is almost never a distribution in the corporate law sense. because they represent no economic event – “NO WEALTH CHANGES” hands.

• Sometimes a company will change the number of shares in issue by capitalizing its reserve.

• It just create a change in the structure of the company’s shareholders’ Equity (IN ACCOUNTING).


ISSUE PROCEDURES

• Under SEBI’S issue of capital & disclosure requirements regulations 2009 the conditions, restrictions & completion of issue are

(1) CONDITIONS It is authorized by its article of association. It hasn’t defaulted in payments of

interest/principal w.r.t fixed deposits/debt . It shouldn’t defaulted w.r.t payment towards

PF/Gratuity/Bonus.


(2)RESTRICTION An issuer can issue bonus shares in case it has

“OUTSTANDING” fully/partly convertible debt instruments (CDIs)

Bonus shares can be issued by capitalizing (1)Genuine profits (2)Security premiums collected in CASH only


(3) COMPLETION The bonus issue should be completed

within 15 days from the date of its approval by the Board Of Directors of the issuer.

It should be implemented within 2 months from the date of meeting of BODs where the decision to announce the issue was subjected to Shareholder’s approval.

Once the decision is announced, it can’t be withdrawn.


BONUS RATIO OF SELECT COMPANIES,1999-2010

YEAR COMPANY NAME BONUS RATIO

1999 INFOSYS 1:1

2000 THOMAS COOK 2:3

2001 POLARIS SOFTWARE LAB 1:2

2002 KARNATAKA BANK 1:1

2003 P & G 1:2

2004 KOTAK MAHINDRA 1:1

2005 M & M LTD 1:1

2006 TCS 1:1

2007 NIIT 1:2

2008 RELIANCE POWER LTD 3:5

2009 JSPL 5:1

2010 CASTROL INDIA LTD 1:1


ADVANTAGES• Primary motive to increase the “total returns

of the shareholders”.

• Secondary motive is to improve “LIQUIDITY”.

• Tertiary motive to “attract more investors”.


SHARE(STOCK) SPLIT• It is method commonly used to “lower the

market price” of shares by increasing the number of shares belonging to each shareholder.

• It might be in the ratio of 100:10, 10:1, 10:5, 10:2 etc.


SPLIT RATIO OF SELECT COMPANIES ,1999-2010

YEAR COMPANY NAME BONUS RATIO

1999 ACC 100:10

2000 DABUR LTD 10:1

2001 HERO HONDA MOTORS 10:2

2002 BALAJI TELEFILMS 10:2

2003 JSPL 10:5

2004 ASHOK LEYLAND 10:1

2005 ITC LTD 10:1

2006 VOLTAS LTD 10:1

2007 APPLO TYRES 10:1

2008 PROVOGUE INDIA 10:2

2009 BHARATI AIRTEL LTD 10:5

2010 HDFC BANK LTD 10:2


ADVANTAGES• Helps in enhancing “TRADING LIQUIDITY”.

• At the time share prices are high ,splitting of shares makes more attractive to investors.

• It improves the marketability of shares.

• Managers prefer wider distribution of shares but must consider the “FACE VALUE” & “MARKET VALUE” with other companies of the same industry.


COMPARISON

BONUS SHARES

• PAR VALUE of the share is unchanged.

• A part of the “RESERVE” is capitalized.

• It makes changes in the “ISSUED SHARE CAPITAL”.

• It’s the FREE ADDITIONAL SAHRES.

STOCK SPLIT

• PAR VALUE of the share is changed.

• No capitalization of “RESERVE”.

• Splits company’s “AUTHORIZED SHARE CAPITAL”.

• It’s the SAME SHARE splits into 2/more.


BONUS SHARES

• “NO TAXES” paid to acquire bonus shares because they are valued at “NIL COST” ,while calculating capital gains.

• “LIMITED” & “NARROW” investor’s base.

• As cash available more ,so it can be utilized in all Modernisation,Diversification & Expansion job.

STOCK SPLIT

• Tax neutral but when shares sold capital gain taxes are being applied.

• “LARGER” & “WIDER” investor’s base.

• No such “cash” is being available.


BONUS SHARES

• Investor’s may expect same rate of dividend per share to continue, which is not being feasible on long run.

• Increases the “MARKET CAPITALISATION” of the company but it is justifiable in case of increase in earning capacity of the company.

• shareholders may prefer cash dividend may feel disappointed.

STOCK SPLIT

• No such expectations seems to be there.

• Market capitalization remains constant.

• No such disappointment arises.


Thank you

Date post:	08-Nov-2014
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