Q.4 (2) Distinguish between Rights shares and Bonus shares.
Best answer
Answer: Distinction between Rights shares and Bonus shares
| Point | Rights shares | Bonus shares |
|---|---|---|
| Meaning | Shares offered to existing equity shareholders in proportion to their holding, on payment. | Fully paid shares issued free to existing shareholders by capitalising reserves. |
| Consideration | Shareholders pay the issue price. | No payment; issued free of cost. |
| Purpose | To raise additional capital. | To capitalise accumulated profits/reserves. |
| Effect on funds | Company's cash resources increase. | No new funds; reserves are converted into share capital. |
| Right to renounce | Shareholder may accept, reject or renounce in favour of another person. | Cannot be renounced. |
| Legal provision | Section 62 of the Companies Act, 2013. | Section 63 of the Companies Act, 2013. |
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