A bonus share is an additional share bestowed by a company to its existing shareholders for free of cost. When the company, despite a profitable turnover, is unable to pay cash dividends to its shareholders due to a possible dearth of liquidity, the company issues new or additional shares in the form of bonus shares to its shareholders. Bonus shares are issued in proportion to the shares and dividends held by a shareholder, and no additional charges are levied on the shareholders by a company for issuing bonus shares.
Despite having ample liquidity, companies may still issue bonus shares to avoid the high dividend distribution tax levied on them. This tax must be paid by the companies at the time of dividend declaration.
Bonus Issue of Shares
Advantages of Bonus Shares
> Eligibility for Bonus Shares
The eligibility for bonus shares depends on the record date and ex-date of the shareholders.
The record date is a cut-off date set by the company and the investors must be shareholders of the company before this date for them to be eligible to receive bonus share issue. Besides, the ex-date is a day preceding the record date set by the company.
In India, the delivery of shares into a Demat account takes place after 2 days from the trading date. All existing shareholders before the ex-date and record date are eligible to receive bonus shares issued by a company. However, to qualify to receive bonus shares, the company stocks must be bought before the ex-date.
Any stocks bought on the ex-date shall not be eligible for an issue of bonus shares as the ownership of the stocks cannot be gained by the investor before the record date.
Once a new ISIN (International Securities Identification Number) is allocated to the bonus shares, they are credited into the shareholder’s Demat account within 10-15 days. Shareholders shall receive an SMS or Email about the credit of bonus shares into their Demat account or shareholders can directly login to their online Demat accounts to check their statement that reflects the delivery of bonus shares on a given day.