ADVERTIsem*nTS:
(A) For Shareholders:
(1) Immediately Realizable:
Bonus shares can be sold in the market immediately after a shareholder gets it.
ADVERTIsem*nTS:
(2) Not taxable:
Bonus shares are not taxable.
(3) Increase in future Income:
Shareholders will get dividend on more shares than earlier in future.
ADVERTIsem*nTS:
(4) Good Image increases the value in market:
Bonus shares create very good image of the company and the shares. Thereby it results into increase in the value of the share in the market.
(B) For Company:
(1) Economical:
ADVERTIsem*nTS:
It is an inexpensive mode of raising capital by which cash resources of company can be used for some other expansion project.
(2) Wider Marketability:
When bonus shares are issued, market price of share is automatically reduced which increases its wider marketability?
(3) Increase in Credit Worthiness:
ADVERTIsem*nTS:
Issuing bonus shares mean capitalisation of profits and capitalisation of profits always increases the credit worthiness of the company to borrow funds.
(4) More realistic Balance Sheet:
Balance Sheet of the company will reveal more realistic picture after the issue of bonus shares.
(5) More Capital Availability:
ADVERTIsem*nTS:
After issuing bonus shares, more capital will be available and hence more capital can be utilised for more expansion works.
(6) Unaltered Liquidity Position:
Liquidity cash position of the company will remain unaltered with the issue of bonus shares because issue of bonus shares does not result into inflow or outflow of cash.
Disadvantages of Issue of Bonus Shares:
ADVERTIsem*nTS:
1. Rate of dividend decline:
The rate of dividend in future will decline sharply, which may create confusion in the minds of the investors.
2. Speculative dealing:
It will encourage speculative dealings in the company’s shares.
ADVERTIsem*nTS:
3. Forgoes Cash equivalent:
When partly paid up shares are converted into fully paid-up shares, the company forgoes cash equivalent to the amount of bonus so applied for this purpose.
4. Lengthy Procedure:
Prior approval of central government through SEBI must be obtained before the bonus share issue. The lengthy procedure, sometime may delay the issue of bonus shares.
