Under the circumstances, the company issues new shares to the existing shareholders in lieu of paying dividend in cash. Sebi guidelines on bonus issue of a company are as follows. Issue of bonus shares shall not be made pending conversion of fully convertible debentures or partly convertible debentures unless sufficient number of shares is reserved for allotment to the holders of the said fcds or pcds after conversion. Bonus declared by companies, list of companies issing. Without prejudice to the provisions of subregulation 1, the. Companies issue bonus shares to encourage retail participation and increase their equity base.
Sebi guidelines for issue of bonus shares advanced. But both types of companies can pay a stock dividend through a bonus issue. For example, a company may give one bonus share for every five shares held. Record date for bonus issue and intimation of board meeting for allotment of bonus shares source. For this purpose a sample of 40 companies was selected which was further. Pdf impact of corporate bonus issue action on stocks in india. Issue of bonus shares under companies act, 20 taxguru.
The shares thus, issued, are known as bonus shares. The paper investigates the relevance of signaling hypothesis in india by examining market reaction and operating performance around distribution of bonus shares for a large sample of firms listed. Introduction of bonus shares bonus issue means offer of free additional. A bonus issue or scrip issue is a stock split in which a company issues new shares without charge in order to bring its issued capital in line with its employed. Bonus issue of shares as per section 63 of companies act, 20. Shareholders can sell the shares to meet their liquidity needs. They are additional shares given to the current shareholders.
Procedural checklist for issue of bonus shares us 63 of the companies act 20 read with rule 14 of the companies share capital and debentures rules, 2014 an. When price per share of a company is high, it becomes difficult. The following circumstances warrant issue of bonus shares. Bonus issue approved by shareholders at the annual general meeting on 25 april 2007 and taking effect on 8 may 2007, the bonus issue had the effect of lowering the groups price per share, aligning the shares. 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. In this way, shareholders will get additional shares without making any further payment. A bonus issue of shares is excluded from the definition of distribution in section 829 of the companies act 2006. Sometimes a company cannot pay dividend in cash due to shortage of liquid funds, viz. Checklist for issue of bonus shares us 63 of companies. The issue of bonus shares in payment of dividend is called capitalization of undistributed profit. A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders.
Record date for bonus issue and intimation of board. It is the further issue of shares by a company to its existing shareholders without any receipt of any consideration. This research project is a study to find out the impact of announcement of bonus shares on the share price of a firm. Bonus declared by companies, list of companies issing bonus shares, company bonus shares. The rate of dividend in future will decline sharply, which may create confusion in the minds of the investors. Bonus shares are shares given to the existing shareholders in proportion to the number of shares they hold. Bonus announcement or proportion of the bonus may stimulate the investors to buy or sell of the shares before and after of exbonus issue date. An issuance of bonus shares is approved by the general meeting of a limited company on the basis of proposal made by the board of directors. A company may decide to distribute further shares as an alternative to increasing the dividend payout. A bonus issue of shares is stock issued by a company in lieu of cash dividends. This means that, except where the bonus issue is being carried out for the purpose of paying up any amounts unpaid on existing shares, a bonus issue of shares can be paid up out of either distributable or nondistributable reserves. The bonus issue shall be made out of free reserves built out of the genuine profits or securities premium collected in cash only and reserves created by revaluation of fixed assets shall not be capitalised for the purpose of issuing bonus shares. Pdf impact of bonus issues on share prices of the companies.
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