Consider the following comparisons between the Rights issue and Bonus Issue:
1. While Rights issue is raising funds from new investors, Bonus issue is raising funds from existing investors
2. While Rights issue is allotted at market price of the share, Bonus issue is allotted without any price
Choose the correct option from the codes given below:
Rights issue (RI): When a company raises funds from its existing shareholders by selling (issuing) them new shares / debentures, it is called as rights issue. The offer document for a rights issue is called as the Letter of Offer and the issue is kept open for 30-60 days. Existing shareholders are entitled to apply for new shares in proportion to the number of shares already held. Illustratively, in a rights issue of 1:5 ratio, the investors have the right to subscribe to one (new) share of the company for every 5 shares held by the investor.
In a Bonus Issue, the company issues new shares to its existing shareholders. As the new shares are issued out of the company’s reserves (accumulated profits), shareholders need not pay any money to the company for receiving the new shares. The net worth (owner’s money) of a company consist of its equity capital and its reserves. After a bonus issue, there is an increase in the equity capital of the company with a corresponding decrease in the reserves, while the net worth remains constant. In a bonus issue of 5:1 ratio, the investor will receive five new shares of the company for each share the investor held. (SEBI)
This question is a part of GKToday's Integrated IAS General Studies Module