Question

What are the similarities and differences between rights issue and bonus issue?

Answer 1

Similarities

1.In both right issue and bonus share the first preference is given to existing shareholders of the company

2. Both increase the issued share capital

3. Both are ordinary shares.

Differences

1. Right shares are issued to shareholders of the comapy at a discounted price and these are issued based on the holdings of each share holder while bonus shares are issued at free of cost out of accumulated profits.

2. The objective to issue right shares is to raise the proposition of the share capital while for bonus shares is to bring the market price per share to a more well known range.

3. The shareholders of right shares may fully or partly renounce their shares while in bonus shares the shareholders cannot do the same.

4. Right share are fully or partly paid up while bonus shares are fully paid up.

5. To avail the benefit of right issue minimum subscription is required while there is no minimum subscription required for bonus shares.