Question

What are the differences between right issues and bonus issues? Your answer should include the advantages and disadvantages of both right issues and bonus issues. (8marks)

Answer 1

Difference between Right Shares and Bonus shares are as followss:

Right Isuues Bonus Issues 1. 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 |1.Bonus issues are arrised on account of profits earned by the company. These profits are converted into capital and distributed among the shareholders free of cost in a shares. proportion of their respective holdings 2.Bonus shares are issued by the company to the 2. Rights issue shares are available to existing shareholders equla to their holdings which can be bought at a discounted price existing shareholders in specific proprtionate to their holdings at free of cost 3. Rights issues involves creation of additional shares 3.Bonus issues are arised out of accumulated priofits 4. Right shares can be renounced either completely or partially 5. Right shares can be either fully paid up or partlally 5. Bonus shares are always fully paid up 4.There is no suh option exists for Binus shares paid up shares 6. Right issues should have minimum subscription 6. Bonus issues not necessary to have subscription

Advantages of Right Issues:

The control of the company remains in the hands of the existing shareholders. This is because the shares are only issued to those existing shareholders.

Expenses of public issue can be saved through right issues

Shares are being offered only to the existing shareholders at a discounted price

Right issue involves equitable distribution of shares and same proportion of rights

Disadvantages of Right issues

The Value of each share will be get diluted if more number of shares were issued

Advantages of Bonus issues

Get back their accumulated profits

Bonus shares cannot be treated as dividend

Arises capital gain by selling shares

Disadvantages of Bonus Shares

Number of shares increases resulting in decrease of shares

Promtes speculation in the shares of the company

May adversely affect future investors