COMPARATIVE STUDY ON BONUS SHARE & STOCK SPLIT

PRESENTED BY:Pratyush Kumar Navajyoti Martha

 A bonus share is a free share of stock given to current shareholders in a company, based upon the number of shares that the shareholder already owns.

BONUS SHARE

While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company. Although the total number of issued shares increases, the ratio of number of shares held by each shareholder remains constant.
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 A bonus share issue is not a dividend. This is almost never a distribution in the corporate law sense. because they represent no economic event NO WEALTH CHANGES hands.

Sometimes a company will change the number of shares in issue by capitalizing its reserve. It just create a change in the structure of the companys shareholders Equity (IN ACCOUNTING).
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ISSUE PROCEDURES
Under SEBIS issue of capital & disclosure requirements regulations 2009 the conditions, restrictions & completion of issue are (1) CONDITIONS It is authorized by its article of association. It hasnt defaulted in payments of interest/principal w.r.t fixed deposits/debt . It shouldnt defaulted w.r.t payment towards PF/Gratuity/Bonus.
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(2)RESTRICTION An issuer can issue bonus shares in case it has OUTSTANDING fully/partly convertible debt instruments (CDIs) Bonus shares can be issued by capitalizing (1)Genuine profits (2)Security premiums collected in CASH only

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(3) COMPLETION The bonus issue should be completed within 15 days from the date of its approval by the Board Of Directors of the issuer.
It should be implemented within 2 months from the date of meeting of BODs where the decision to announce the issue was subjected to Shareholders approval. Once the decision is announced, it cant be withdrawn.
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BONUS RATIO OF SELECT COMPANIES,1999-2010

YEAR 1999 2000 2001 2002 2003 2004 2005 2006 COMPANY NAME INFOSYS THOMAS COOK POLARIS SOFTWARE LAB KARNATAKA BANK P&G KOTAK MAHINDRA M & M LTD TCS 1:1 2:3 1:2 1:1 1:2 1:1 1:1 1:1 BONUS RATIO

2007 2008
2009 2010
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NIIT RELIANCE POWER LTD

JSPL CASTROL INDIA LTD
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1:2 3:5
5:1 1:1

ADVANTAGES
Primary motive to increase the total returns of the shareholders.

Secondary motive is to improve LIQUIDITY.

Tertiary motive to attract more investors.

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SHARE(STOCK) SPLIT
It is method commonly used to lower the market price of shares by increasing the number of shares belonging to each shareholder.

It might be in the ratio of 100:10, 10:1, 10:5, 10:2 etc.

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SPLIT RATIO OF SELECT COMPANIES ,1999-2010

YEAR 1999 2000 2001 2002 2003 2004 2005 2006 ACC DABUR LTD HERO HONDA MOTORS BALAJI TELEFILMS JSPL ASHOK LEYLAND ITC LTD VOLTAS LTD COMPANY NAME 10:1 10:2 10:2 10:5 10:1 10:1 10:1 BONUS RATIO 100:10

2007 2008
2009 2010
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APPLO TYRES PROVOGUE INDIA

BHARATI AIRTEL LTD HDFC BANK LTD
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10:1 10:2
10:5 10:2

ADVANTAGES
Helps in enhancing TRADING LIQUIDITY.

At the time share prices are high ,splitting of shares makes more attractive to investors. It improves the marketability of shares.
Managers prefer wider distribution of shares but must consider the FACE VALUE & MARKET VALUE with other companies of the same industry.
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COMPARISON
BONUS SHARES PAR VALUE of the share is unchanged. A part of the RESERVE is capitalized. It makes changes in the ISSUED SHARE CAPITAL. Its the FREE ADDITIONAL SAHRES.
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STOCK SPLIT PAR VALUE of the share is changed. No capitalization of RESERVE.

Splits companys AUTHORIZED SHARE CAPITAL. Its the SAME SHARE splits into 2/more.

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BONUS SHARES NO TAXES paid to acquire bonus shares because they are valued at NIL COST ,while calculating capital gains.

STOCK SPLIT Tax neutral but when shares sold capital gain taxes are being applied.

LIMITED & NARROW investors base.

As cash available more ,so it can be utilized in all Modernisation,Diversification & Expansion job.
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LARGER & WIDER investors base.

No such cash is being available.

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BONUS SHARES
Investors may expect same rate of dividend per share to continue, which is not being feasible on long run.

STOCK SPLIT
No such expectations seems to be there.

Increases the MARKET CAPITALISATION of the company but it is justifiable in case of increase in earning capacity of the company. shareholders may prefer cash dividend may feel disappointed.
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Market capitalization remains constant.

No such disappointment arises.

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Thank you
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