Bonus and Buyback of Shares Pp 2
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Transcript of Bonus and Buyback of Shares Pp 2
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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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