You may be familiar with the term 'bonus issue' of shares if you are an investor or prospective investor in the stock market. When a business that is listed on a stock market chooses to give away free extra shares to its current owners, it becomes a bonus issue.
A corporation's board of directors discusses and determines how many shares will be given to shareholders. If a company decides to carry out a bonus issue, for example, it will decide on and settle the number of allotments, which may be one bonus share for every two shares that each shareholder in the listed company owns.
The corporation determines how many bonus shares each investor will receive for holding a specific number of shares for a predetermined amount of time, and it compensates them appropriately. The objective of this bonus issuance is to enhance the entity's market image while luring in further investment and rewarding current shareholders.
A company's share capital, but not its market capitalisation, will rise with a bonus share issue. Multiplying the number of outstanding shares of the firm by the current stock price yields the market capitalisation. Share capital is the sum of money raised by a firm via the issuance of shares.
The company's strong earnings, which are shown in its quarterly or annual reports, or its share reserves are used to finance a bonus share issuance. Investors are drawn in by this kind of share offering, which enhances the company's appeal to ordinary investors. There is a drawback to this bonus share issuance, too, since the corporation might have spent the money needed for the issue elsewhere in the company. Thus, this can occasionally be seen as a missed potential cost for the business and its investors.
When selling the assets, including the bonus share, if you are an investor getting a bonus issue, you will still be required to pay capital gains tax. Bonus shares are not taxable in the eyes of the firm.
Reliance Industries Limited's bonus issue
At its 47th annual general meeting (AGM), which took place on Thursday, August 29, Reliance Industries Limited said that its Board will convene on September 5 to make decisions about the bonus matter.
Based on market value, the oil-to-telecom conglomerate is the biggest firm in India. Mukesh Ambani, the company's chairman and managing director, declared that a 1:1 bonus issue is being considered. In the upcoming days, the corporation will provide further information.
In the meeting, Ambani stated, 'The Board of Directors will meet on September 5 to consider issuing bonus shares in the ratio of 1:1. Reliance Industries Limited has sent a notice to the stock exchanges.'
This implies that for each share of Reliance Industries that a shareholder holds for a predetermined amount of time, they will earn one bonus share.
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