bonus shares

Some of the benefits available to the company by issuing bonus shares are:

(i)                 Conservation of Cash. The issue shares allows the company to declare a dividend without using up the cash that may be used to finance the profitable investment opportunities within the company and thus company can maintain its liquidity position.

(ii)               Under Financial Difficulty and Contractual Restrictions. When a company faces stringent cash difficulty and is not in a position to distribute dividend in cash, or where certain restrictions to pay dividend in cash are put under loan agreement, the only way to satisfy the shareholders or to maintain the confidence of the shareholders is the issue of bonus shares.

(iii)             Remedy for Under-Capitalisation. In the state of under-capitalisation, the rate of divided is very much high. In order to lower down the rate of dividend, the company issued bonus shares instead of paying dividend in cash.

(iv)             Widening the Share Market. If the market value of a company's share is very high, it may not appeal to small investors. By issuing bonus shares, the rate of dividend is lowered down and consequently share price in the market is also brought down to a desired range of activity and thus trading activity would increase in the share market. Now small investors may get an opportunity to invest their funds in low priced shares.

(v)               Economical Issue of Securities. The cost of issue of bonus shares is the minimum because no underwriting commission, brokerage etc. is to be paid on this type of issue. Existing shareholders are allotted bonus shares in proportion to their present holdings.

Regards

Advantages to Company of Issue Bonus Share

(i) Conservation of Cash. The issue shares allows the company to declare a dividend without using up the cash that may be used to finance the profitable investment opportunities within the company and thus company can maintain its liquidity position.

(ii) Under Financial Difficulty and Contractual Restrictions. When a company faces stringent cash difficulty and is not in a position to distribute dividend in cash, or where certain restrictions to pay dividend in cash are put under loan agreement, the only way to satisfy the shareholders or to maintain the confidence of the shareholders is the issue of bonus shares.

(iii) Remedy for Under-Capitalisation. In the state of under-capitalisation, the rate of divided is very much high. In order to lower down the rate of dividend, the company issued bonus shares instead of paying dividend in cash.

(iv) Widening the Share Market. If the market value of a company's share is very high, it may not appeal to small investors. By issuing bonus shares, the rate of dividend is lowered down and consequently share price in the market is also brought down to a desired range of activity and thus trading activity would increase in the share market. Now small investors may get an opportunity to invest their funds in low priced shares.

(v) Economical Issue of Securities. The cost of issue of bonus shares is the minimum because no underwriting commission, brokerage etc. is to be paid on this type of issue. Existing shareholders are allotted bonus shares in proportion to their present holdings.

Opps.......i didn't saw the post of Ankur Sir.........as we, both, post it almost  on same time !!

I copied the same from internet (Google). As with this kind of explanation no need to draft a long reply.

Same Here Sir :)

Thxs Sir,

But what all other benefits from income tax point of view?

Dear All,

Awaiting for any views.

Regards,

Meenu

Please find attach herewith a useful attachment…

Kindly clarify the STCG/LTCG effect on this?

You are asking the tax benefits due to issue of bonus shares from Cos. perspective???????

It will be capital expenditure for the company.....

OR

You are asking what tax benefits individuals get from bonus issue????? coz only in that case there will be any ltcg or stcg in case if such shares are transfered.....

Pls clarify your question.......

Thanks Ankur Sir and Harshit