What a bonus issue

This article needs additional citations for verification. An issue of bonus shares is referred to as a bonus share issue or bonus issue. A bonus issue is usually based upon the number of shares that shareholders already own. While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company. Bonus shares means shares allotted by a company to its existing share holders without any consideration . An assesse holders shares of a company and thereafter the company allotted him bonus shares on the basis of holding. Whenever a company announces a bonus issue, it also announces a book closure date which is a date on which the company will ideally temporarily close its books for fresh transfers of stock. Depending upon the constitutional documents of the company, only certain classes of shares may be entitled to bonus issues, or may be entitled to bonus issues in preference to other classes. Bonus shares are distributed in a fixed ratio to the shareholders. Sometimes a company will change the number of shares in issue by capitalizing its reserve. In other words, it can convert the right of the shareholders because each individual will hold the same proportion of the outstanding shares as before. The current shareholders simply receive new shares, for free, and in proportion to their previous share in the company.

Therefore, a bonus share issue is very similar to a stock split. A bonus share issue is most commonly not taxed as a dividend, even if it is charged to retained earnings. However, there may be capital gains or profit on sale implications on the subsequent sale of these shares. In general, the cost base of the bonus shares is usually zero, but if the bonus issue is taxable as a dividend, then the cost base is generally the taxed dividend amount, plus any calls on partly paid bonus shares. The acquisition date is the date of issue. This finance-related article is a stub. You can help Wikipedia by expanding it. This legal term article is a stub.

A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders. Bonus issues are given to shareholders when companies are short of cash and shareholders expect a regular income. Shareholders may sell the bonus shares and meet their liquidity needs. Bonus shares are issued according to each shareholder’s stake in the company. For example, a three-for-two bonus issue entitles each shareholder three shares for every two they hold before the issue. But the stockholder may have to pay capital gains tax, if she sells them. Bonus shares increase a company’s share capital but not its net assets.

Companies low on cash may issue bonus shares rather than cash dividends as a method of providing income to shareholders. However, issuing bonus shares takes more money from the cash reserve than issuing dividends does. Also, because issuing bonus shares does not generate cash for the company, it could result in a decline in the dividends per share in the future, which shareholders may not view favorably. Stock splits and bonus shares have many similarities and differences. When a company declares a stock split, the number of shares increases, but the investment value remains the same. When a stock is split, there is no increase or decrease in the company’s cash reserves. In contrast, when a company issues bonus shares, the shares are paid for out of the cash reserves, and the reserves deplete. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

A bonus is any financial compensation, reward, or return over and above what was expected by the recipient. A retention bonus is a financial incentive offered to a valuable employee to keep him or her on the job during a particularly crucial business cycle. If a company offers a prospective hire financial awards to take a job, it is called a signing bonus. A performance bonus is supplemental compensation that an employer offers to employees in exchange for targets met. A year-end bonus is a boost in salary or other reward given to employees at the close of the year. A restricted stock unit is compensation issued by an employer to an employee in the form of company stock. Salary in Tech: What’s the Difference? Career advice: Financial analyst or financial adviser?