Can any one tell me, what are the benefits of issuing bonus share-
1.)For Company, &
2.)For Share Holder?
Pradeep Mangtani (Student CA FINAL) (823 Points)
06 April 2010Can any one tell me, what are the benefits of issuing bonus share-
1.)For Company, &
2.)For Share Holder?
Ankur Garg
(Company Secretary and Compliance Officer)
(114773 Points)
Replied 06 April 2010
Some of the benefits available to the company by issuing bonus shares are:
(i) Conservation of Cash. The issue shares allows the company to declare a dividend without using up the cash that may be used to finance the profitable investment opportunities within the company and thus company can maintain its liquidity position.
(ii) Under Financial Difficulty and Contractual Restrictions. When a company faces stringent cash difficulty and is not in a position to distribute dividend in cash, or where certain restrictions to pay dividend in cash are put under loan agreement, the only way to satisfy the shareholders or to maintain the confidence of the shareholders is the issue of bonus shares.
(iii) Remedy for Under-Capitalisation. In the state of under-capitalisation, the rate of divided is very much high. In order to lower down the rate of dividend, the company issued bonus shares instead of paying dividend in cash.
(iv) Widening the Share Market. If the market value of a company's share is very high, it may not appeal to small investors. By issuing bonus shares, the rate of dividend is lowered down and consequently share price in the market is also brought down to a desired range of activity and thus trading activity would increase in the share market. Now small investors may get an opportunity to invest their funds in low priced shares.
(v) Economical Issue of Securities. The cost of issue of bonus shares is the minimum because no underwriting commission, brokerage etc. is to be paid on this type of issue. Existing shareholders are allotted bonus shares in proportion to their present holdings.
Regards
Ratan Deep Saxena
(Asstt Manager (Accounts & Finance))
(2998 Points)
Replied 06 April 2010
Pradeep Mangtani
(Student CA FINAL)
(823 Points)
Replied 06 April 2010
Thanks Ankur Sir & Ratan Deep Sir.....
Ratan Deep Saxena
(Asstt Manager (Accounts & Finance))
(2998 Points)
Replied 06 April 2010
you are welcome Mr. Pradeep.
Keep smiling....
regards,
ratan
Prasanth Nair V
(ACA,ACS,CWA Final,Mcom)
(557 Points)
Replied 06 April 2010
But, Bonus Shares cannot be issued in lieu of Divident as per Companies Act.
So how can u say that Issue of Bonus Shares will help the company in Conservation of cash.
Please Clarify?
Ronak Choudhary
(CA Final Article)
(130 Points)
Replied 06 April 2010
Ankur..bro u rock...anyone havin ny doubts relatin to company laws..contact ankur garg..he's a champ...