Difference between Bonus Share and Right Share

by Mansi Dandekar Financial Blogger

The subscribed capital of companies can be increased by issuing shares to existing shareholders as the right shares. Conversely, when a company has reserves collected from a large amount of profit, the company converts such profits into capital and divides them among the shareholders in proportion to their holdings. These are known as bonus shares and do not require payment of anything to the shareholder.

Right share: Right shares are those shares issued by the company to existing shareholders to increase the subscribed share capital of the company. Right shares are issued primarily to existing equity shareholders on a pro-rata basis. The company sends an offer letter to each shareholder, which gives the company the option to buy the shares offered to them at discounted prices.

Bonus share: Bonus shares are free shares issued to existing shareholders based on the number of shares already existing. The bonus issue only increases the total number of shares issued, but it does not change the net worth of the company. Bonus shares do not add fresh capital to the company as they are issued at no cost to the shareholders. In a way, it is a way of distributing the company's profit to shareholders in the form of new shares.

This difference can be understood from the following points:

Process: Bonus shares are shares given to shareholders free of company reserves. It is collected from the income of the Reserve Company. Rights, on the other hand, are shares given by the company to existing shareholders to raise additional capital from the stock market.

Cost: Right shares are offered to existing shareholders at a price below market value. The share premium is usually linked to the face value of the share. In contrast, bonus shares are issued free of charge to shareholders.

An Objective: The basic objective of the rights issue is to raise additional capital for the company. In contrast, the bonus issue aims to increase its active trading by increasing the number of outstanding shares. That is, it increases the liquidity of the company's shares.

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