Issue of Right Share and Bonus Share

GROUP- 9
TOPIC- ISSUE OF RIGHT SHARE AND BONUS SHARE
NAME OF THE STUDENTS-

1. RANANJAYA RAVI-1182
2. MIHIR KUMAR-1340
3. RAVI KUMAR SINGH- 1322
4. RAHUL KUMAR- 1097
5. ABHISHEK- 1324
ISSUE OF RIGHT SHARE AND
BONUS SHARE
OBJECTIVES & AGENDAS
Companies can use either equity or debt
form to raise capital. Equity can be raised by
way of rights issue, bonus issue, private
placement, public issue, etc. An offer of
securities made to the existing shareholders
of the Company is a rights issue. Bonus
shares may be issued to the members of the
Company out of its free reserves, or
securities premium account or capital
redemption account.
RIGHTS ISSUE
• It is the process of raising funds by issuing
shares to the existing shareholders of the
company.
• It means that the existing shareholders have
the pre-emptive right to subscribe the shares
of the company in relation to an outsider.
• Rights issue can be opted by a Company only
in case of further issue of shares and not at the
time of first issue.
• The share holder has the right to either accept
or renounce the offer made by the company.
STEP-BY-STEP POCEDURE OF
RIGHT ISSUE OF SHARES
• STEP-1 : Company will decide the cut-off date . Company will Prepare Draft Offer
of Letter.
• STEP-II: Call Meeting of Board Director
• STEP-III : Hold the Board Meeting
• STEP-IV : Offer will be open at least after 3 days of issue of letter of offer. Offer
will be open for minimum 15 days or maximum for 30 days.
• STEP-V : File Form with Registrar
• STEP-VI : Receive the Money from the Shareholders.
• STEP-VII : Call Board Meeting after receiving of Share application money.
• STEP-VIII : Hold the Board Meeting
• STEP-IX : File form with ROC
• STEP-X : Issue Share Certificate
CAVEAT
• Board resolution is sufficient for approval
of rights issue. Consent of members in
general meeting isn’t required.
• Prior to rights issue, the Company shall
ensure that its authorized share capital is
more than the post rights issue paid up
capital. If not, the Company shall first
alter its share capital then proceed with
rights issue Form SH-7 to be filed.
• Valuation report is not required to be
obtained for issue of shares by rights
issue.
ADVANTAGES OF RIGHTS ISSUE DISADVANTAGES OF RIGHTS ISSUE
1. The right issue is a fast source of raising funds 1. After the right issue share price gets decrease
2. The right issue incurs low cost 2. Limitation of fund raise
3. The board of directors can not misuse share issuing 3. The negative effect of the company’s public image
option
BONUS ISSUE
• It is the process of issue of additional shares to the
existing shareholders without any consideration.
• It is generally given in proportion to shareholding

and dividend rights.
• It is given to retain the surplus or to built trust

amongst the shareholders.
PROCEDURE FOR ISSUE OF BONUS SHARES
• Call a Board Meeting

• Convene a Board Meeting
• Circulate draft minutes
• Send Notice of General Meeting
• Convene the General Meeting
• Convene a Board Meeting
• File Form No. PAS -3
• Issue of share certificates
CAVEAT
S
• Bonus shares shall not be issued in the lieu of dividend.

• Special resolution isn’t required to be passed in general meeting
of members for approval of bonus issue. Ordinary resolution is
sufficient.
• Unlike rights issue, there is no option for renunciation of bonus
shares.
• Prior to bonus issue, the Company shall ensure that its
authorized share capital can accommodate the post bonus issue
paid up capital. If not, the Company shall first alter its share
capital and then proceed with bonus issue. Form SH-7 to be filed.
FREE RESERVES THAT CAN BE USED FOR ISSUE OF BONUS SHARES
• Surplus in Profit & Loss A/C
• General Reserve
• Capital Reserve
• Dividend Equalization Reserve
• Debenture Redemption Reserve
• Securities Premium Account

ADVANTAGES OF ISSUE OF
BONUS SHARES
(A)FOR SHAREHOLDERS-
(1)Immediately Realizable
(2)Not taxable
(3)Increase in future Income
(4)Good Image increases the value in market
(B) For Company:

(1) Economical
(2) Wider Marketability
(3) Increase in Credit Worthiness
(4) More realistic Balance Sheet
DISADVANTAGES OF ISSUE
OF BONUS SHARES
1.Rate of dividend decline

2. Speculative dealing
3. Forgoes Cash equivalent
4. Lengthy Procedure
Rights Issue Bonus Issue
Issued to existing shareholders as a right to buy
Issued to existing shareholders at free of cost in
additional shares at a discounted price within a
proportion to their existing shareholding.
specified period of time.
Shares are issued from free reserves, capital
Additional shares are created for the purpose of the
redemption reserve A/c, and/or securities premium
issue.
A/c.
The purpose is to pay shareholders in the form of
The purpose is to raise additional capital for the shares instead of dividends and also to bring down
company. the share price in the market and make it more
affordable to Investors.
A minimum subscription is needed for the rights issue It is not relevant as shares are issued at no cost to the
as shareholders need to pay for the issue. existing shareholders.
Rights can be fully utilized or rejected partly or
There is no such need or option.
completely
Rights issues can be fully paid up, or party paid up. A bonus issue is always fully paid up.
Issued at a discounted price than market value Issued as free shares (No cost)
The company receives cash from the shareholders. There is no such transaction.
Share price can be affected to some extent due to Share prices reduce according to the proportion of
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GROUP- 9

TOPIC- ISSUE OF RIGHT SHARE AND BONUS SHARE

NAME OF THE STUDENTS-

of rights issue. Consent of members in

general meeting isn’t required.

• Prior to rights issue, the Company shall

ensure that its authorized share capital is

more than the post rights issue paid up

capital. If not, the Company shall first

alter its share capital then proceed with

rights issue Form SH-7 to be filed.

• Valuation report is not required to be

obtained for issue of shares by rights

2. The right issue incurs low cost 2. Limitation of fund raise

• It is generally given in proportion to shareholding

• It is given to retain the surplus or to built trust

• Call a Board Meeting

• Bonus shares shall not be issued in the lieu of dividend.

• Dividend Equalization Reserve

• Debenture Redemption Reserve

• Securities Premium Account

(B) For Company:

1.Rate of dividend decline

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