Difference Between Right Issue and Bonus Issue

Differences between Right Issue and Bonus Issue

Differences between Right Issue and Bonus Issue are explained in the below table,

Right IssueBonus Issue

A rights issue means an option offered to the existing shareholders to subscribe to the shares at a discounted price within a specified time duration

A bonus issue means an issue of extra shares by the company to the existing shareholders free of cost

Share offer with discounted price

Share offer freely (without any price for shareholder)

A rights issue is offered to raise additional capital

A bonus issue is offered when a company cannot payout dividends due to a financial crunch or to restrict cash outflow.

Equity percentage will change only if shareholders ignore the right or sell the right to other parties

Equity percentage will remain the same as before after the bonus issue

This is not an alternative for dividends

This is an alternative for dividends

The right issue involves cash inflow to the company

Bonus issue does not involve any cash inflow to the company

|Option given to the existing shareholders in which the rights offer can be fully utilized, partially accepted, or completely rejected

There is no such option given to the existing shareholders or need for those options

After a rights issue, the number of shares increases and it dilutes the value of the share, and in turn, decreases the share price in the market

After a bonus issue, the company’s share price will reduce in the market as the number of shares increases

Example of right issue: The company needs to raise additional capital. Debt is not an option for the company. Hence, the company offers the right issue where the existing shareholders can buy additional shares at a discounted price to the market price. The shareholder has the option to either accept the offer, sell the right to any other party or ignore it. Shareholders’ equity percentage will remain the same only if they accept the offer.

Example of bonus issue: Due to certain adverse financial concerns, the company cannot offer dividends to the shareholders. As an alternative option, bonus shares will be issued. The shareholders have the option to sell the bonus shares if they need monetary returns for their investment.
Right Issue vs Bonus Issue

Differences between Right Issue and Bonus Issue are explained in the below points,

  • A rights issue means an option offered to the existing shareholders to subscribe to the shares at a discounted price within a specified time duration.
    On other hand, a bonus issue means an issue of extra shares by the company to the existing shareholders free of cost.

  • Share offer with discounted price in a right issue.
    But share offer freely (without any price for shareholder) in bonus issue.

  • A rights issue is offered to raise additional capital.
    But a bonus issue is offered when a company cannot payout dividends due to a financial crunch or to restrict cash outflow.

  • In a right issue, the equity percentage will change only if shareholders ignore the right or sell the right to other parties.
    But in a bonus issue, the equity percentage will remain the same as before after the bonus issue.

  • The right issue is not an alternative for dividends.
    But on other hand, the bonus issue is an alternative to dividends.

  • The right issue involves cash inflow to the company.
    In contrast, the bonus issue does not involve any cash inflow to the company.

  • In the right issue, the option given to the existing shareholders in which the rights offer can be fully utilized, partially accepted or completely rejected.
    In the bonus issue, there is no such option given to the existing shareholders or need for those options.

  • After a rights issue, the number of shares increases and it dilutes the value of the share, and in turn, decreases the share price in the market.
    But after a bonus issue, the company’s share price will reduce in the market as the number of shares increases.

  • Example of right issue: The company needs to raise additional capital. Debt is not an option for the company. Hence, the company offers the right issue where the existing shareholders can buy additional shares at a discounted price to the market price. The shareholder has the option to either accept the offer, sell the right to any other party or ignore it. Shareholders’ equity percentage will remain the same only if they accept the offer.
    Example of bonus issue: Due to certain adverse financial concerns, the company cannot offer dividends to the shareholders. As an alternative option, bonus shares will be issued. The shareholders have the option to sell the bonus shares if they need monetary returns for their investment.

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