1RubySharma
 A rights issue is an issue of rights to buyadditional securities in a company made tothe companys existing security hold...
 A rights issue is directly offered to allshareholders of record or through broker dealersof record and may be exercised ...
 More control on existing shareholdersBecause right shares are issued to existing shareholder, so there is no risk oflosi...
 3. No cost for issuing shares to publicCompany has not to give any invitation to public, so advertising cost and otherne...
1.The value of each share will be diluted as a result of theincreased number of shares issued.2. It is awfully easy for i...
 Right shares must be in ratio of equity shares ofexisting shareholders. Right shares will be issued with 15 days notice...
 Bonus shares are additional free shares issued to theshareholder by the company. Profitable Companies inIndia issue Bonu...
There are some conditions which need to be satisfiedbefore issuing Bonus shares 1) Bonus shares can be issued by a compan...
 4)If the company has availed of any loan from the financialinstitutions, prior permission is to be obtained from theinst...
a. Surplus in Profit & loss Account.b. General reservec. Dividend Equalization reserved. Capital reservee. Debenture redem...
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Right shares & bonus shares by Ruby Sharma

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Right shares & bonus shares by Ruby Sharma

  1. 1. 1RubySharma
  2. 2.  A rights issue is an issue of rights to buyadditional securities in a company made tothe companys existing security holders.When the rights are for equity securities, suchas shares, in a public company, it is a way toraise capital.With the issued rights, existingsecurity-holders have the privilege to buy aspecified number of new securities from thefirm at a specified price within a specifiedtime.RubySharma 2
  3. 3.  A rights issue is directly offered to allshareholders of record or through broker dealersof record and may be exercised in full orpartially. Subscription rights may either betransferable, allowing the subscription-rightsholder to sell them privately, on the open marketor not at all.The price at which the shares areoffered is usually at a discount to the currentshare price, which gives investors an incentive tobuy the new shares — if they do not, the value oftheir holding is diluted.RubySharma 3
  4. 4.  More control on existing shareholdersBecause right shares are issued to existing shareholder, so there is no risk oflosing of control of existing shareholders. Existing shareholders’ share willincrease in company and they can take decision without any compromise withthe principles of company. It is very helpful to achieve the missions ofcompany.2. No loss to existing shareholderBy issuing shares to existing shareholders, value of share will increase due tostability in controlling power of company. So, there will not be any loss toexisting shareholders with right shares.4RubySharma
  5. 5.  3. No cost for issuing shares to publicCompany has not to give any invitation to public, so advertising cost and othernew issue cost will decrease with right shares.4. Helpful to increase the goodwill of companyIt is also way to increase the goodwill and reputation of company in industry.5. Capital formationCompany can get capital at any time without any delay because company caneasily issue of shares to existing shareholders just sending right shares offernotice.6. More scientificDistribution technique of right shares issue is more scientific. Not all shares willget by single shareholders but it will be in the proportion of existing shares whichis in the hand of old shareholders at this time5RubySharma
  6. 6. 1.The value of each share will be diluted as a result of theincreased number of shares issued.2. It is awfully easy for investors to get tempted by the prospect ofbuying discounted shares with a rights issue. But it is not always acertainty that you are getting a bargain. But besides knowing theex-rights share price, you need to know the purpose of theadditional funding before accepting or rejecting a rights issue.3. A rights issue can offer a quick fix for a troubled balancesheet, but that doesnt necessarily mean management will addressthe underlying problems that weakened the balance sheet in thefirst place.RubySharma 6
  7. 7.  Right shares must be in ratio of equity shares ofexisting shareholders. Right shares will be issued with 15 days notice.This notice will be offer. Existing shareholderscan either accept or reject this offer. Right shares issue must not be opened morethan 60 days under SEBI guidelines.Provision of 81 will not apply on privatecompany.This rule will not also apply onconversion of debentures into shares.7RubySharma
  8. 8.  Bonus shares are additional free shares issued to theshareholder by the company. Profitable Companies inIndia issue Bonus Shares.These are additional sharesissues given the shareholder without any cost toexisting shareholders. Free shares of stock given to currentshareholders, based upon the number of shares that ashareholder owns.While this stockaction increases the number of shares owned, it doesnot increase the total value.This is due to the fact thatsince the total number of shares increases, the ratio ofnumber of shares held to number of sharesoutstanding remains constant.8RubySharma
  9. 9. There are some conditions which need to be satisfiedbefore issuing Bonus shares 1) Bonus shares can be issued by a company only if theArticles of Association of the company authorizes a bonusissue. 2) It must be sanctioned by shareholders in generalmeeting on recommendations of BOD of company. 3) Guidelines issued by SEBI must be complied with. Caremust be taken that issue of bonus shares does not lead tototal share capital in excess of the authorized sharecapital. Otherwise, the authorized capital must beincreased by amending the capital clause of theMemorandum of association.9RubySharma
  10. 10.  4)If the company has availed of any loan from the financialinstitutions, prior permission is to be obtained from theinstitutions for issue of bonus shares. 5)If the company is listed on the stock exchange, the stockexchange must be informed of the decision of the boardto issue bonus shares immediately after the boardmeeting. 6)Where the bonus shares are to be issued to the non-resident members, prior consent of the Reserve Bankshould be obtained. 7)Only fully paid up bonus share can be issued. Partly paidup bonus shares cannot be issued since the shareholdersbecome liable to pay the uncalled amount on thoseshares.10RubySharma
  11. 11. a. Surplus in Profit & loss Account.b. General reservec. Dividend Equalization reserved. Capital reservee. Debenture redemption reservef. Securities premium Account11RubySharma

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