Explanation
Whenever a company announces a bonus issue, it also announces a book closure date which is a date on which the company will ideally temporarily close its books for fresh transfers of stock.
An issue of bonus shares is referred to as a bonus issue. Depending upon the constitutional documents of the company, only certain classes of shares may be entitled to bonus issues, or may be entitled to bonus issues in preference to other classes. Bonus shares are distributed in a fixed ratio to the shareholders.
Sometimes a company will change the number of shares in issue by capitalizing its reserve. In other words, it can convert the right of the shareholders because each individual will hold the same proportion of the outstanding shares as before.
A bonus share issue is not a dividend. Although these shares are "distributed" from a company to its shareholders, this is almost never a "distribution" in the corporate law sense. That is because they represent no economic event – no wealth changes hands. The current shareholders simply receive new shares, for free, and in proportion to their previous share in the company. Therefore, a bonus share issue is very similar to a stock split. The only practical difference is that a bonus issue creates a change in the structure of the company's shareholders' equity (in accounting). Another difference between a bonus issue and a stock split is that while a stock split usually also splits the company's authorized share capital, the distribution of bonus shares only changes its issued share capital (or even only its outstanding shares).
| This legal term article is a stub. You can help Wikipedia by expanding it. |
Read more about this topic: Bonus Share
Famous quotes containing the word explanation:
“How strange a scene is this in which we are such shifting figures, pictures, shadows. The mystery of our existence—I have no faith in any attempted explanation of it. It is all a dark, unfathomed profound.”
—Rutherford Birchard Hayes (1822–1893)
“Are cans constitutionally iffy? Whenever, that is, we say that we can do something, or could do something, or could have done something, is there an if in the offing—suppressed, it may be, but due nevertheless to appear when we set out our sentence in full or when we give an explanation of its meaning?”
—J.L. (John Langshaw)
“My companion assumes to know my mood and habit of thought, and we go on from explanation to explanation, until all is said that words can, and we leave matters just as they were at first, because of that vicious assumption.”
—Ralph Waldo Emerson (1803–1882)