Bonus Issue

Bonus Issue

What Does Bonus Issue Mean?

An offer of free additional shares to existing shareholders. A company may decide to distribute further shares as an alternative to increasing the dividend payout.

Also known as a "scrip issue" or "capitalization issue".

New shares are issued to shareholders in proportion to their holdings. For example, the company may give one bonus share for every five shares held.

What is a Book closure/Record date?

The registered shareholders of the company are entitled to corporate benefits such as dividend, bonus, rights etc. announced by the company from time to time. Since, the ownership of shares of companies traded on the stock exchange is freely transferable and to enable the company to know the persons entitled to the benefits, all transfers of securities have to be registered with the company (this is required in case of transfer of shares in physical form). Since transfer of securities is a continuous process open any time, the company announces cut off dates from time to time and members on the register of shareholders as of these cut off dates are entitled to the benefits. Such cut-off dates are record dates. Alternatively, the company might choose the close the register of shareholders for registration of transfer during a specified period. All transfer requests received before the commencement of the book closure or on or before the record date are considered for the purpose of transfer. A Company cannot close its books for more than 30 days at stretch for a book closure, and not more 45 days in a year. The period between two Book Closure cannot be less than 90 days

What is the difference between book-closure and record-date?

ACC announced a Book Closure (BC) for the period 6th July to 30th July'96. During this period, the company had closed its register of security holders. This was done to determine the number of registered members who were eligible for the Bonus 3:5 and a dividend of 40%. The process of transfer of shares was operational till 5th July'96. The company announced a No Delivery period from 12th June to 9th July'96 before the Book Closure. During this period, trading was permitted in the securities but the trades were settled only after 9th July. Hence, the buyers of the shares were not be eligible for the Bonus 3:5 and a 40% dividend. The first day of the No Delivery period is considered as an Ex - Date since the buyer of the shares is not eligible for the corporate benefits for this BC.

The same logic holds good for Record date, but the two main differences are that : In case of a record date, the company does not close its register of security holders. Record date is a cut off date ( in the above example '5th july96) for determining the number of registered members who are eligible for the corporate benefits [Interim dividend (30%) ].

What is a 'No Delivery' period?

Whenever, a book closure or a record date is announced by a company, the exchange sets up a 'No Delivery' period for that security. During this period, trading is permitted in the security. However, these trades are settled only after the No-Delivery period is over. The start of No-Delivery period is the ex-date of the settlement.The settlement is clubbed with the settlement of the week whose pay-out date falls just after the end of the no-delivery period. This is done to ensure that investor's entitlement for the corporate benefits is clearly determined. No-delivery period generally extends to all weekly cycles touched from 15 days prior to the record date and 4 days subsequent to the record date (both inclusive).

What is an ex-date?

The first day of the 'No Delivery' period is the ex-date viz., if there is any corporate benefit such as rights, bonus, dividend etc. announced for which book closure/record date is fixed, the buyer of the shares on or after the ex-date will not be eligible for the benefits while the seller would be eligible for the same.