Differences between Rights Shares and Bonus Shares

The most well-liked and practical source of long-term financing for businesses is share capital. To raise money from the capital market, the organisations use a variety of issues. A corporation may issue (sell-off) financial securities such as equity shares to receive investor subscriptions through IPOs and FPOs. Other forms of issues that the corporations use to raise capital and serve as cash alternatives in various situations include the right issue and bonus issue.

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Definition of Right Shares

Right shares are those that the firm issues with the intention of raising its subscribed share capital through additional issuance. Through a letter of an issue and on a pro-rata basis, the right shares are largely distributed to the current equity shareholders. Each shareholder receives a notice from the firm with an opportunity to purchase the shares the company is offering to them at a discount. The shareholder must notify the corporation within the allotted time about the number of shares they have chosen. Through the special resolution, the shareholders may partially or totally relinquish this privilege, allowing the corporation to issue shares on a preferential basis to the general public or a select group of investors.

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Right Issue Provisions in the Companies Act

Section 62 of the Companies Act of 2013 governs the issuance of shares on a rights basis. According to Section 62(1)(a), additional shares shall be offered to persons who are holders of equity shares of the company on the date of the offer in proportion to the paid-up share capital on those shares, as nearly as circumstances permit, by sending a letter of offer subject to the following conditions:

The offer must be submitted in writing and must include the number of shares being offered as well as a deadline, not to be fewer than 15 days nor more than 30 days from the date of the offer, after which the offer will be assumed to have been rejected.

The above-mentioned offer shall be regarded to include a right exercisable by the individual in question to relinquish the shares issued to him or any of them in favour of any other individual unless the articles of the company stipulate otherwise, and the notice shall incorporate a mention of this right.

The Board of Directors may dispose of the shares in a way that is advantageous to the shareholders and the company after the period specified in the notice has expired or upon receiving earlier notification from the person to whom the notice was given that he declines to accept the shares offered.

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Definition of Bonus Shares

According to the number of shares held by the shareholder, bonus shares are free shares of stock given to current owners of the company. The bonus issuance does not affect the entity’s net worth; it just increases the total number of shares issued. The proportion of shares owned by shareholders does not change despite a rise in the total number of shares that firms issue as bonus issues. Since bonus shares are distributed to shareholders at no cost to the corporation, they do not increase capital. According to Section 63 of the Companies Act of 2013, the following reserves or accounts may be used by the firm to issue fully paid-up bonus shares:

• Securities premium account
• Free reserves
• Capital redemption reserve account

Bonus shares, however, cannot be issued by capitalising reserves created as a result of asset revaluation. Bonus shares may also be issued if the company has excess reserves and plans to expand its operations. The bonus issue lowers the company’s share price, and because shares are more accessible, there is an increase in demand, which raises the share price. The companies listed below are not permitted to issue bonus shares:

• a business that has neglected to repay a deposit.
• a business that has unpaid deposit interest.
• a business that has no aid for debt securities.
• a company that has neglected to fulfil an employee’s statutory obligations, such as provident fund contributions, bonuses, and gratuities.
• A company with any outstanding unpaid partially paid shares

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Bonus Shares and Right Issue Pursuant to the 2013 Companies Act

Entities frequently make decisions that involve spending money now while expecting to profit later. For example, when a company purchases a machine that will last ten years, constructs a new plant that will last thirty years, or begins a research and development project. Companies can raise the necessary financial capital for such projects by (1) attracting new investors; (2) reinvesting profits; (3) borrowing through banking institutions or bonds; and (4) selling shares. When business owners select sources of financial capital, they must also decide how to pay for them.

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Differences between Rights Shares and Bonus Shares

Differences between Rights Shares and Bonus Shares are tabulated under this sentence.

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Bonus Shares 2022

Details of the Bonus Shares 2022 are given in the table.

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Right Shares 2022

Table under this heading will list Right Shares 2022

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When a company whose shares are quoted on a recognised stock exchange issues shares to existing equity holders as a right or bonus issue, the shares must be listed on the respective stock exchange. Right shares entail selling shares in the primary market by issuing rights to existing shareholders. On the other hand, the issuance of bonus shares is analogous to the company paying a dividend in the form of shares. In a nutshell, the difference between right shares and bonus shares is that right shares are issued at a lower price than the current market share price, whereas bonus shares are issued as a reward to the company’s shareholders on a specific date, i.e. the shareholders must have the company’s equity shares in their Demat account on that specific date. Download the entri app to learn more about the stock market and shareholders.