What is a Bonus Share Issue and its record date and ex-date

A bonus issue of shares which is also known as scrip or capitalization issue refers to providing shareholders with additional shares free of cost. It is a strategy used by companies issuing bonus shares to incentivize existing holders without distributing dividends in the form of cash.

Bonus shares issued by Indian companies in a certain ratio on the basis of existing shares. For example, if a company issues bonus shares in the ratio of 1:2 then it means that the one share is issued for every 2 shares held by an existing shareholder. To find the number of bonus shares issued to any shareholder you can use the bonus issue ratio formula i.e. Bonus Issue Ratio = Number of bonus share/Number of existing shares.

So, if a shareholder is holding 100 shares and he is issued bonus shares in the above ratio then the exact number of bonus shares will be calculated as follows: Bonus issue ratio= 1/2, No. of bonus shares= x, No. of existing shares= 100. If we put them in the formula, then 1/2= x/100, x=50

 

 

Why do companies issue bonus shares?

1). Capital surplus reserve: Companies announcing bonus shares is a sign that they are financially strong with ample reserves, and they want to capitalize the reserve by issuing bonus shares.

2). Avoid cash bonus: Generally, companies issue bonus shares when they are not in a position to cash bonus in the form of dividends as it affects their working capital negatively.

3). Better aligned capital structure: In cases where a company's fixed asset value exceeds the share capital value it signals the underutilization of share capital. Therefore, companies issue bonus shares which increases the share capital hence improving the capital structure of the company.

4). Financially better than dividends for companies: If the companies give dividends from accumulated reserves, then shareholders may ask for the same dividend next year around which might not be financially viable for the company. Therefore, companies issue bonus shares which in beneficial for both the shareholders as well as the company.

 

 

What is the record date for bonus issue?

A record date is that date on which a company goes through its records to check the list of those shareholders who are eligible to receive bonus shares. All the shareholders holding the shares of a particular company are eligible to get the benefit of different corporate actions such as dividends, bonus shares, stock splits and right issue. Get to know about the differences between rights issues and bonus issues.

You should also be aware of the concept of ex-date while understanding bonus shares. Ex-date is the date when the effect of the corporate action is reflected on the share prices, and it starts trading without the benefit of corporate actions.

All the financial instruments are moved to the T+1 cycle which is why the record date and ex-date for all corporate actions including bonus issues are on the same date.

For example, if a company announces shares in the ratio 1:1 and the record date is on Tuesday. In this case, the ex-date will also be on Tuesday and all those holding shares of that company before Tuesday will be eligible for bonus shares and from Tuesday the shares will be traded at different prices.

 

 

What happens to share price after bonus issue?

In the case of companies which already have made a mark for themselves in the market and there is a stark value in the paid-up value and market value of the shares of these companies. Then, in this case bonus shares widen this gap as generally there is a significant rise in the market prices of the company's shares after they announce bonus shares.

 

Benefits of bonus shares to investors

The investors are at benefit when companies issue additional shares to them for free of cost. Some of the major benefits that shareholders get are:

1). Investors don't have to tax the monetary benefits from bonus shares.

2). Bonus shares are also beneficial for the short-term investors who don't want to stay invested in them for the long term and expect quick returns from their investments.

3). When companies issue additional shares to benefit the shareholders instead of burning cash it signifies that companies are ready to use that cash for the future growth of the business which could exponential returns to the investors in the future instead of short-term gains.

4). Issuing additional shares to shareholders also benefits the latter if the company decides to distribute dividends later as he will get more cash for the extra shares he got after the bonus issue.

 

 

Procedure for issue of bonus shares

A company intending to issue bonus shares must adhere to the following procudure:
 
1) Call Board meeting: The for most step to issue bonus shares is to call a board meeting. According to Section 173(3) of the act, the notice must be at least 7 days before the Board Meeting should be issued 7 days prior to the meeting.
 
2) Carry out the Board meeting successfully: The next step is to carry out the board meeting successfully for which the following steps must be ensured:
->  It is to be made sure that the meeting has the required quorum i.e. one-third of the total board members.
- > Put forwards the resolution in front of the shareholders for approval in a general meeting by way of ordinary resolution..
- > Make sure that the resolution is passed.
- > Fix the ratio of the bonus issue.
- > Fix a date, time and venue for the general meeting and also authorize a director to send notices for the meeting.
 
3) The next step is to circulate the minutes of the board meeting to all the directors for comments. In case of public companies, they have to file the board resolution in the form of MGT-14 with the Registrar of Companies in 30 days.
 
4) Timely intimation of General Meeting: Next step is to intimate all directors, shareholders, auditors and members about the general meting to approve the bonus issue via a notice atleast 21 days prior.
 
5) Carry out the general meeting: Now, you must convene the general meeting and pass the ordinary resolution to allow issue of bonus shares by obtaining simple majority as per section 114(1).
 
6) Carry out a Board Meeting: Next you will have to carry out a board meeting for approving the allotment of bonus shares and follow set protocols for the needful.
 
7) File Return of Allotment in Form PAS-3: The return of allotment in Form PAS-3 needs to be filed by the company within 30 days of the allotment of securities, only if the company has share capital. The attachments are as follows:
 
-> A certified copy of the Ordinary Resolution adopted in the Extraordinary General Meeting.
-> A copy of the Board Resolution approving the share allotment.
-> A certified list of allottees with their names, addresses, occupations if any, and number of securities allotted to each. This list shall be certified by the signatory of Form PAS-3.
 
8). Share Certificate Issue: In the last step, immediately after allotment the company must inform the depositories about when the shares will be held in demat form and if the shares are isssued in the physical form then it must be done within 2 months of the allotment.

 

 

Disadvantages to the shareholders

The disadvantages of bonus share to the shareholders:

1). Not every investor in more shares in the company prefers liquidity too in order to carry out other activities. Also, when these investors sell their bonus shares then their stake in the company is also reduced.

2). There is no real addition in the wealth of shareholders when bonus shares are issued as the share price of the total shares held by the holder drops in proportion to the new shares issued which keeps the market capital the same as before. The real gain is in holding the shares in the long term if the share price increases, which is not the priority of everyone.

 

SEBI guidelines for issue of bonus shares

SEBI has issued certain guidelines with respect to the issue of bonus shares. The guidelines are:

1. If there are Fully Convertible Debentures (FCDs) and Partial Convertible Debentures (PCD) pending for conversion, then in this case bonus issue cannot be made by the company unless the holders of such FCDs and PCDs are given the benefit equivalent to that of bonus issue.  
2. Companies can issue bonus shares only out of the reserves created out of either profits or cash collected from share premiums. In the case, where shares are issued for consideration besides cash then in this case premium earned on these issues could not be used to issue bonus shares.
3. A publicly listed company cannot issue bonus shares out of revaluation reserves.
4. Companies cannot issue bonus shares as a replacement for dividends.
5. If a company still has some partly paid-up shares, it cannot issue bonus shares unless those shares are fully paid up.
6. A company cannot issue a bonus until it has any due payment of interest or principal on FDs or existing debentures or has missed payment of any statutory dues of their employees such as provident fund, gratuity, bonus, etc.
7. A company must implement the process of issuing bonus shares within 6 months of getting approval from the Board of Directors. Also once made, the company cannot take back the decision of the bonus share issue.

 

 

 

 

Final Thoughts

Companies reward existing shareholders with bonus shares. The shares themselves do not add to an investor's wealth, but they enhance the survival and competitiveness of the company in the long run. Bonus shares generally give investors a positive view about the company's performance and its growth potential. This has a tendency to push up stock prices and general market perception.

Bonus shares issued by the companies are the strategic approach through which companies improve their investor relationships and distribute profits so that investors show loyalty and trust

 

 

FAQ

Ques 1. Upcoming bonus share in 2025?

Ans. Here is the list of upcoming bonus share in 2025 are:

S:No	Company	Bonus Ratio	Announcement	Record	Ex-Bonus
1	B N Rathi Securities Ltd	1:1	24-01-2025	24-1-2025	24-01-2025
2	Mayukh Dealtrade Ltd	3:5	2/01/2025	17-01-2025	17-01-2025
3	Algoquant Fintech Ltd	1:2	31-12-2024	8/01/2025	8/01/2025
4	Padam Cotton Yarns Ltd	1:1	26-12-2024	8/01/2025	8/01/2025
5	Garware Technical Fibers Ltd	4:1	25-12-2024	3/01/2025	3/01/2025
6	Ceenik Exports (India) Ltd	1:5	26-12-2024	3/01/2025	3/01/2025
7	KPI Green Energy Ltd	1:2	20-12-2024	3/01/2025	3/01/2025
8	Enser Communication Ltd	1:1	28-12-2024	3/01/2025	3/01/2025

 

 

Ques 2. Top 10 bonus share giving Indian companies?

Ans. Here is the list of top 10 bonus share given by India companies are:

S:No	Companies	Number of Bonus Issues
1	Wipro	17
2	L&T	10
3	Infosys	8
4	ITC	7
5	Cipla	7
6	Britannia	6
7	Tata Steel	6
8	BPCL	6
9	Nestle	5
10	M&M	5