1 minute read
Let's Walk Through Some of the Significant Benefits of Bonus Shares
Here are some key advantages that shareholders can employee:
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Tax Efficiency: Shareholders are not subject to taxation when they receive bonus shares from a company. Moreover, bonus shares offer greater advantages compared to receiving dividends, as dividends could potentially incur a tax rate of up to 30%. Conversely, when bonus shares are issued, shareholders are liable for capital gains tax at rates of 15% for short-term sales or 10% for long-term sales (provided long-term capital gains surpass Rs. 1 lakh).
Additional advantage:
Shareholders who wish to hold stocks for the long term can earn other benefits, like dividends on these shares, as and when the company declares. The income generated through dividends has the potential to significantly improve the overall performance of the stock
Accessibility and Affordability: As mentioned before, this is a win-win for investors and companies. It is one of the primary reasons why companies issue bonus shares. Issuing bonus shares escalates the total number of outstanding shares in the company, thereby enhancing liquidity in the market. Moreover, a reduction in the share price after the bonus issue will make the share affordable and attractive, especially for new investors.
Note: Although bonus shares offer advantages, it's important to avoid assuming that companies not issuing them are unprofitable or financially weak.
Final Thoughts
In conclusion, bonus share issues are a strategic tool companies can use to reinforce their financial stability, enhance shareholder value, and attract new investors. The benefits of bonus shares span from conserving cash and rewarding loyal shareholders to signaling robust financial health to the market. Companies can strike a harmonious balance between satisfying their investors and pursuing growth initiatives by opting for bonus share issues.
As an integral part of corporate finance, bonus share issues showcase the dynamic nature of companies adapting to changing market conditions while prioritizing the interests of their stakeholders. If you want to know more about this, please book a demo with us at Vega Equity!
