bonus and buyback of shares pp 2

7/29/2019 Bonus and Buyback of Shares Pp 2

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BONUS ANDBUYBACK OF

SHARESGROUP MEMBERS

SNEHA RAMESH(M1249)

TRUPTI KOTHARI(M1253)


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WHAT ARE BONUS SHARES

When the additional shares are allotted to theexisting shareholders without receiving anyadditional payment from them, it is known as issueof bonus shares.


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GUIDELINES TO BE

FOLLOWED

Securities and Exchange Board of India (SEBI) guidelines are to be

followed for issue of bonus shares:-

No company shall, issue the shares by the way of bonus unless the

benefits are extended to the shareholders.

1. The bonus issue is made out of free reserves built out of the

profits or share premium collected in cash only.

2. The residual reserves after the proposed capitalization shall be at

least 40% of the increased paid up

Disclosure of restated EPS.


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REASONS FOR ISSUING

BONUS SHARES

1.Brings the market price per share within a more reasonable

range.

2.Promotes more active trading.

3. Nominal rate of dividend tends to decline.

4. Share capital base increases

5. Shareholders regard a bonus issue as a strong indication

that the prospects of the company

6. It improves the prospects of raising additional funds.


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ADVANTAGES TO THESHAREHOLDERS1. Tax benefits

2. Indication of higher future profits

3. Increase in future dividend

4. High psychological value


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DISADVANTAGES TO

THE SHAREHOLDERS

Some shareholders may prefer cash dividend to stock

dividend, such shareholders may feel disappointed (no doubt

they can very well sell their bonus shares and get their

money).


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DISADVANTAGES FOR

THE COMPANY

1. Increase in the capitalization of the company.

2. Expects the existing rate of dividend per share to continue.

3. Prevents the new investors from becoming the

shareholders


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BUYBACK OF SHARES

When a corporation buys its own stock on

the open stock market, it is considered a

"stock buyback" and the shares purchased

are re-titled "treasury stock.


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REASONS FOR

BUYBACK

1. Unused cash

2. Market perception

3. Exit option

4. Increase in promoters stake

5. Exit monitoring of accounts and legal controls

6. Show rosier financial picture


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ADVANTAGES O F

BUYBACK

1. Benefits of Stock Buybacks

2. Increased Shareholder Value

3. Higher Stock Prices

4. Increased Float

5. Excess Cash

6. Income Taxes

7. Price Support


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bonus and buyback of shares pp 2

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