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What are bonus shares | types of bonus shares

Learn what are bonus shares with types of bonus shares and advantages. Bonus shares are additional shares that are given to current shareholders without any cost. They are based on the number of shares that a shareholder owns. The bonus shares are calculated when the total number of shares increases with the constant ratio and number of shares to the number of shares outstanding. The company makes a profit as employed capital increases. Bonus shares the point towards the good health of a company. They imply that the company is strong to finance equity and shows the company’s confidence in increasing profits.

Types of Bonus shares

There are two types of bonus issues :- 1) Fully paid Bonus share : The fully paid-up bonus shares are issued from sources as the capital as it reserves a profit and loss account.

2) Partly paid-up bonus shares :A partly paid share is a share in a company that is partially paid as compared to the par value. It is done by understanding that calls for more funds will be made by the company from time to time until the shares are fully paid. Upcoming bonus shares in coming years:- There are upcoming bonus shares in 2020. If you are not holding these shares you can be eligible for the bonus issues if you purchase its shares before the ex-date.

Calculation of Bonus shares

They are issued to existing shareholders in proportion to the invested amount. Bonus shares are distributed in the ratio 2:3 means we get two additional shares for every three shares. If you own 3000 shares of a particular company you receive 2000 additional shares at no cost. They are issued to the existing shareholders in proportion to the invested amount. These shares are distributed in the ratio of 2:3. So you get additional shares for every three shares. If you own 3000 shares for a particular company you will receive 2000 additional shares at no cost.

Types of Bonus shares

There are two types of bonus issues as follows: 1) Fully paid Bonus shares : They are issued from profit and loss, security premium accounts, and capital redemption reserves. The bonus shares cannot be issued out of a capital reserve or security premium not realized in cash such as capital reserve created by revaluation of assets 2) Partly paid-up bonus shares : Let us understand what a partly paid share is before we define partly-paid up bonus shares. When we apply a bonus it converts partially paid shares into fully paid shares without calling an uncalled amount. This occurs through the capitalization of profit called Partly Paid-up Bonus Shares.

There is a need for investors to pay tax on receiving bonus shares. It is beneficial for the long-term shareholder of a company who wants to increase the investment. Bonus shares will enhance the faith of investors in the operation of a company because cash is used for business growth. They will increase the outstanding shares which enhances the liquidity of the stock. The perception of company size increases with the increase in the issued share capital.