Difference Between Rights Shares and Bonus Shares (6 Points)
Table of Contents
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.
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 Fixed Capital and Working Capital
- Difference Between Owned Capital and Borrowed Capital
- Difference Between Debenture and Share
- Difference Between Preference Shares and Equity Shares
Difference Between Rights Shares and Bonus Shares
| Points | Rights Shares | Bonus Shares |
| 1) Meaning | In 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) Payment | Subscribers 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 shares | Shareholders 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 Subscription | Company 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 Renounce | The shareholders can renounce his shares. | Shareholders cannot renounce his bonus shares. |
| 6) Purpose of Issue | The 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. |
