Bonus Shares¶
Bonus shares, also known as scrip dividends or capitalization issues, are additional shares that a company distributes to its existing shareholders free of charge, based on their current shareholding. These shares are issued as a reward to shareholders and are not paid for in cash. Instead, they are given in proportion to the number of shares a shareholder already holds.
Types of Bonus Shares¶
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Fully Paid Share:
- Fully paid bonus shares are issued to existing shareholders without any additional payment required.
- Shareholders receive these bonus shares in proportion to their existing holdings.
- For example, if a shareholder owns 100 fully paid shares and the company announces a 1-for-1 fully paid bonus issue, the shareholder will receive an additional 100 fully paid bonus shares, effectively doubling their total holdings to 200 shares.
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Partly Paid Share:
- Partly paid bonus shares are a type of bonus share where the shareholder is required to make a partial payment for the additional shares received.
- Unlike fully paid bonus shares, which are issued entirely for free, partly paid bonus shares involve a cash payment that is less than the nominal value of the shares.
- For example, if a company declares a partly paid bonus issue and a shareholder is required to pay 25% of the nominal value of the additional shares, they would need to make a cash payment for the remaining 75% of the nominal value.
- Partly paid bonus issues are less common than fully paid bonus issues and are often used when a company wants to conserve cash while still rewarding its shareholders.
In both cases, the goal of issuing bonus shares is to enhance shareholder value and provide an incentive for investors to hold onto their shares. Bonus issues can have various impacts, including increasing the number of outstanding shares, reducing the share price (due to dilution), and improving liquidity in the stock market.
Companies typically make bonus share announcements through regulatory filings and provide details about the bonus issue, including the record date (the date on which shareholders are eligible for the bonus shares) and the ratio at which the bonus shares will be distributed.