A bonus issue of shares is made to the existing shareholders of a company without any consideration from them. The entitlement to the bonus shares depends upon the existing shareholding of the investor. A bonus issue in the ratio 1:3 entitles the shareholder to 1 bonus share for every 3 held. The company makes the bonus issue out of its free reserves built from genuine profits. Reserves built from the revaluation of assets will not be considered for making a bonus issue. A company cannot make a bonus issue if it has defaulted on the payment of interest or principal on any debt securities issued or any fixed deposit raised.
Share Market Bonus Issue and Dividends
A company has to get the approval of its board of directors for a bonus issue. In some cases, the shareholders of the company also need to approve the issue. Where the shareholders’ approval is not required, the bonus issue must be completed within 15 days of the board’s approval. Where approval of the shareholders is required, the issue must be completed within two months of receiving the board’s approval. Most of the share market tips providers often recommend investing in the companies where shareholder’s approval is not required while dispatching bonuses. A bonus issue once announced cannot be withdrawn. The record date for the bonus issue will be announced and all shareholders as on the record date will be entitled to receive the bonus. The listing agreement entered into by the company with the stock exchange where the shares are listed requires the company to give notice of at least seven working days to the exchange of the book closure or record date for a bonus issue. The company shall also inform the stock exchange of the date on which the bonus shares will be credited/dispatched.
Dividends are the share of the profits of the company received by its shareholders. A company may declare interim dividends during the financial year and final dividend at the end of the year. A company is allowed to declare dividends out of the profit and loss account and the profits of the year in which the dividends are to be paid.
A loss-making company cannot, therefore, pay a dividend to its shareholder. A company which has failed to redeem its preference shares is prohibited from declaring dividends. Dividends cannot be declared out of the share premium account, revaluation reserve or capital redemption reserve, among others. The people who trade in the MCX market are supported by the commodity market tips providers by extending best, accurate and highly reliable recommendations to them.
SEBI has mandated that listed companies shall declare dividends on a per share basis as against the practice in the past of declaring dividends as a percentage of the face value. This is to avoid confusion among investors. For example, if a 50% dividend was declared by company A whose shares had a face value of Rs.2 and company B whose shares had a face value of Rs.10, an investor in company A will receive Re.1 as dividend as against Rs.5 in the case of company B. The dividends received by the investor are different even though the percentage is the same because the face value of the shares is different. In the interest of the investors’ company A is now required to declare the dividend as Re.1 per share while company B will declare the dividend payable as Rs.5 per share.
The board of directors of a company will recommend the dividend which will be approved by the shareholders. A company has to pay dividends within 30 days of its declaration.