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Bonus Issue Assignment

A bonus issue is the distribution of additional shares to existing shareholders at no cost, increasing the number of shares without changing the company's overall value. SEBI guidelines stipulate that bonus shares can only be issued from free reserves and require board approval, among other conditions. While bonus issues can enhance investor confidence and liquidity, they do not provide immediate cash benefits and may lead to a decrease in earnings per share.

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2 views2 pages

Bonus Issue Assignment

A bonus issue is the distribution of additional shares to existing shareholders at no cost, increasing the number of shares without changing the company's overall value. SEBI guidelines stipulate that bonus shares can only be issued from free reserves and require board approval, among other conditions. While bonus issues can enhance investor confidence and liquidity, they do not provide immediate cash benefits and may lead to a decrease in earnings per share.

Uploaded by

911dilipdas
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Concept of Bonus Issue and SEBI Guidelines on

Bonus Issue

Introduction

A bonus issue refers to the distribution of additional shares by a company to its existing
shareholders without any extra cost. It is issued in proportion to their existing holdings and is a way
of capitalizing company reserves.

Concept of Bonus Issue

A bonus issue involves converting retained earnings into share capital. It increases the number of
shares but does not change the overall value of the company.

Key Features

1 Issued free of cost


2 Given in a fixed ratio
3 Increases number of shares
4 Does not affect ownership
5 Reduces market price per share

Example

In a 1:1 bonus issue, a shareholder holding 100 shares will receive 100 additional shares.

SEBI Guidelines on Bonus Issue

1 Bonus shares can be issued only from free reserves, securities premium, or capital redemption
reserve
2 Articles of Association must authorize the issue
3 Board approval is required
4 Company must not have defaulted in financial obligations
5 Shares must be fully paid-up
6 Cannot be issued in lieu of dividend
7 Must be implemented within prescribed time
8 Once announced, cannot be withdrawn

Advantages

1 Improves investor confidence


2 Increases liquidity
3 No cash outflow
4 Benefits shareholders
Disadvantages

1 No immediate cash benefit


2 EPS may decrease
3 May create misleading perception

Conclusion

Bonus issues are an effective way to reward shareholders while conserving cash. Proper
compliance with SEBI guidelines ensures transparency and builds investor trust.

Bibliography

1 SEBI Regulations
2 Corporate Accounting Books
3 Investopedia
4 NSE India Website
5 ICAI Study Materials

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