Difference Between Rights Shares and Bonus Shares (6 Points)

Difference Between Rights Shares and Bonus Shares

Meaning of Rights Shares

When a company wants to raise further capital, it can issue shares to its existing Equity shareholders in proportion to their existing shareholding. Such an issue of shares is called as ‘Rights Issue’ of shares. Whenever a company makes further issue of shares, the existing Equity shareholders have ‘pre-emptive rights’ to subscribe to the new shares offered by the company.

Difference Between Rights Shares and Bonus Shares

Meaning of Bonus Shares

Bonus shares are fully paid shares issued free of cost to the existing equity shareholders in proportion to their shareholdings. Usually financially sound companies issue Bonus Shares out of their accumulated distributable profits or reserves. Hence as the profits or reserves are capitalized, it is also called as ‘Capitalisation of Profits or Reserves’.

Difference Between Rights Shares and Bonus Shares

PointsRights SharesBonus Shares
1) MeaningIn rights issue, shares are offered to the existing equity shareholders i.e. Company offers the shareholders the first option to buy the shares of the company.Bonus shares are issued to the
existing equity shareholders free
of cost.
2) PaymentSubscribers have to pay for the
Rights Shares. Company only
gives them a right to buy these
shares.
Bonus shares are issued free of
cost to the shareholders.
3) Partly / fully paid up sharesShareholders have to pay for these shares as Application Money, Allotment, Call Money etc. till the full money on shares is paid up.Bonus shares are fully paid up
shares. So no money has to be
paid by the shareholders to the
company.
4) Minimum SubscriptionCompany has to obtain minimum
subscription. If the company fails
to receive minimum subscription,
it has to refund the entire
application money received.
There is no minimum subscription
to be collected as Bonus shares
are issued free of cost by the
company.
5) Right to RenounceThe shareholders can renounce
his shares.
Shareholders cannot renounce his
bonus shares.
6) Purpose of IssueThe rights issue is done by a
company when it wants to raise
fresh funds but wants to give a
chance to their existing members
to increase their shareholding.
When company has accumulated
huge profits or reserves and
company wants to reward its
existing Equity shareholders,
company issues Bonus shares.

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