BONUS SHARES

  • BONUS SHARES
  • Bonus shares, also known as scrip dividends or capitalization issues, are additional shares distributed by a company to its existing shareholders without any cash consideration. These shares are issued as a form of reward to shareholders, usually in proportion to their existing holdings, and are funded through the company’s retained earnings or capital reserves. Bonus shares increase the total number of shares outstanding without affecting the company’s equity capital. πŸ“ˆπŸ’ΌπŸ’°
  • Q: WHAT IS THE PURPOSE OF ISSUING BONUS SHARES?
  • A: The primary purpose of issuing bonus shares is to reward existing shareholders by increasing their ownership stake in the company without requiring them to invest additional capital. Bonus shares are often used as a means to capitalize retained earnings or reserves, improve liquidity in the stock market, enhance investor confidence, and signal the company’s financial strength and growth prospects. πŸ’ΌπŸŒ±πŸ”–
  • Q: HOW ARE BONUS SHARES ISSUED?
  • A: Bonus shares are issued through a resolution passed by the company’s board of directors and subsequently approved by shareholders at a general meeting. The company announces the bonus issue ratio, which determines the number of bonus shares to be distributed for each share held. After the bonus issue is approved, the company updates its share registry and issues new share certificates to eligible shareholders. πŸ’ΌπŸ“πŸ“Š
  • Q: WHAT ARE THE BENEFITS OF BONUS SHARES FOR SHAREHOLDERS?
  • A: For shareholders, bonus shares offer several benefits, including increased ownership in the company without diluting their proportional interest, enhanced liquidity of their investment, potential capital gains from future stock price appreciation, and improved dividend yield as a result of higher shareholdings. Bonus shares also demonstrate the company’s commitment to shareholder value creation. πŸ’ΌπŸ“ˆπŸ’°
  • Q: HOW DO BONUS SHARES IMPACT THE COMPANY’S FINANCIAL STATEMENTS?
  • A: From the company’s perspective, issuing bonus shares does not affect its total equity capital or assets. However, it reduces retained earnings or capital reserves, which are used to fund the bonus issue. On the balance sheet, bonus shares increase the total number of shares outstanding and reduce the earnings per share (EPS) and book value per share (BVPS) metrics proportionally. Nevertheless, bonus shares do not impact the company’s financial position or underlying value. πŸ’ΌπŸ’ΉπŸ“‰
  • Q: WHAT ARE THE TAX IMPLICATIONS OF BONUS SHARES?
  • A: In most jurisdictions, bonus shares are generally not subject to taxation when issued to shareholders. Since no cash consideration is received, bonus shares are not considered taxable income for shareholders. However, when bonus shares are eventually sold, shareholders may be liable for capital gains tax on any realized gains based on the difference between the selling price and the cost basis of the shares. πŸ’ΌπŸ’ΈπŸ“Š
  • In summary, bonus shares serve as a means for companies to reward existing shareholders, enhance shareholder value, and signal financial strength and confidence in the company’s future prospects. By issuing bonus shares, companies can effectively utilize retained earnings or reserves to increase shareholder ownership without diluting equity capital. πŸ’ΌπŸŒŸπŸ“ˆ
  • Keywords: Bonus Shares, Scrip Dividends, Shareholder Rewards, Financial Statements, Tax Implications. πŸ’ΌπŸ”–πŸ“Š
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