What is the difference between bonus issue and rights issue

Rights Issue is a right issued to its existing shareholders to subscribe to the shares at a discounted price within a specified time period. A bonus issue is an issue of shares by the Company to its existing shareholders free of cost.

It is issued in relation to no. In this topic, we are going to learn more about the Right Issue vs Bonus Issue. This is a right given to the existing shareholders to buy additional shares at a discounted price than the market price; they can exercise the right within a stipulated time frame.

Any shareholder who exercises the rights can buy the shares and increase their shareholding in the Company. Post rights issue the number of shares increases, and it dilutes the value of the share, and in turn, affect the share price in the market.

A rights issue is mainly offered in order to raise additional capital. The raised capital can be used for any business needs or settlement of existing debts. Rights given to shareholders can also be used in three ways 1 Use the rights and purchase additional shares, 2 Ignore the rights, or 3 Sell the rights to other parties. ABC Corp has decided to make rights issue. Differences between Right Issue vs Bonus Issue The rights issue is an additional issue of shares by a company for its existing shareholders.

The existing shareholders have their right to subscribe to these shares unless some special rights reserve them for any other individuals. On the other hand, when a firm earns the supernormal amount of profits, these are converted into Capital and divided amongst the shareholders free of cost in a proportion of their respective holdings.

Comments So helpfull. Leave a Reply Cancel reply Your email address will not be published. Please select the batch. Cookies help us provide, protect and improve our products and services. Being issue of Bonus Shares done as per the ratio identified and finalized as per the Shareholders Resolution No. Being such balance transferred to equity share capital account.

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In order to submit a comment to this post, please write this code along with your comment: c2dfa6ed2dffa37bd. The other differences are found in their purpose, price, creation and renunciation, minimum subscription, and the share price. A company offers the right shares in a quest to raise additional funds for the firm from the market. Companies use the raised funds in acquiring assets repayment of debts, corporate expansion, and takeover, among other activities.

Right shares are a better escape for companies from the fangs of high-interest bank loans. Bonus shares also are key in helping the company avoid cash outflows in the form of dividends. While the right shares are issued at discounted prices, the bonus shares are issued free of charge. The discounted prices while offering the right shares mean that the shares are offered to shareholders at a price lower than the market price.

Notably, the right shares are either partially or fully paid up. However, this depends on the proportion of the paid-up value of equity shares in case further issues take place.

On the other hand, unlike the right shares, the bonus shares are always fully paid up. While purchasing the right shares, you will be required to meet the minimum subscription stipulated by the company. The mandatory minimum subscription follows the objective of the company by the provision of the right shares which is the generation of additional capital.

The right shares are additional shares created by a company in a quest to raise additional funds. Notably, the renunciation of the right shares can be done partially or fully.