What are bonus shares? Advantages and disadvantages of bonus shares? When are bonus shares sold? out? This article will give you all the information.
What are bonus shares?
What are bonus shares? Bonus shares are a form of distribution of benefits to current shareholders through the issuance of additional shares free of charge based on their ownership percentage. This is an alternative to cash payments, bringing long-term benefits to both the company and shareholders.
Normally, bonus shares are issued at a certain ratio. For example, in a resolution of the General Meeting of Shareholders of TT Joint Stock Company, dividends are distributed at a ratio of 5:1. This means that for every 5 old shares, shareholders will receive 1 new share, increasing the total number of outstanding shares by 20%. As a result, the value of each share may decrease by 20% because the total value of equity remains unchanged.
Bonus shares are usually distributed in the form of bonus shares and stock dividends, unlike cash dividends in that they do not involve the payment of money. The issuance only increases the number of shares held by shareholders, while diluting the value of each share.
What is the role of stock awards?
- Increase charter capital: The bonus stock issue help the company increase charter capital, create resources for expansion projects, investment knowledge new or debt settlement.
- Shareholder appreciation: This is the company's way of recognizing and rewarding shareholders' trust and contributions in the development process.
- Increase liquidity: By increasing the number of outstanding shares and bonus shares, it promotes trading in the market, making stocks easier to buy and sell and creating excitement.
- Encourage long-term investment: Bonus shares are not only a reward but also an incentive for shareholders to continue to stick with the company, contributing to strengthening the company's trust and stability in the market.
How to issue bonus shares
When are bonus shares sold? Issuance of shares is carried out according to a strict process to ensure fairness and transparency for all shareholders.
First, bonus shares are issued from the company's after-tax profits. This means that after deducting all expenses and taxes, the remaining profits will be used to distribute as bonus shares to shareholders.
Next, the release rate bonus stock tax is decided by the General Meeting of Shareholders, where important decisions related to the company's finances and operating strategies are discussed and approved. Shareholders will participate in voting to determine the issuance ratio, based on factors such as business results, development plans and shareholders' wishes.
Finally, eligible shareholders will receive bonus shares based on their ownership percentage on the record date. This means that only shareholders whose names are on the list on the specified date will be entitled to this benefit. Once the list of eligible shareholders is established, the company will distribute bonus shares according to the ownership percentage of each shareholder.
Some cases of bonus stock payment you should know
If you understand What is bonus stock? We will learn about the cases of paying bonus shares. Bonus shares are often issued as a reward to shareholders or individuals who have made great contributions to the company, especially in cases where the company wants to show gratitude or encouragement. The main purpose of issuing bonus shares is to increase charter capital, thereby providing additional resources for business operations.
Issuing shares to employees for contribution
The company can use a portion of the shares to reward managers, officers, employees or individuals who have made major contributions to the development of the business. The source of shares used for rewards is usually taken from the company's treasury stock.
In this case, the total book value of the company does not change, but the reward recipients will see a clear benefit through an increase in their ownership percentage in the company. Conversely, for shareholders who are not rewarded, their ownership percentage will decrease. This is an effective way for the company to encourage morale and recognize employee dedication.
Issue shares to shareholders
When bonus stock issue to all shareholders, each shareholder will receive additional shares based on a specific ratio. Since all shareholders receive the bonus at the same ratio, the ownership percentage of each shareholder does not change before and after the issuance. This method ensures fairness and is often used to reward existing shareholders, while strengthening their trust and commitment to the business.
Difference between bonus shares and dividends
Many investors still confuse the two concepts "What is dividend?" and "What is bonus stock?”. Dividends are the after-tax profits that a company distributes to its shareholders. The decision to pay dividends must be approved at the General Meeting of Shareholders and usually takes place 1-2 times a year.
Forms of dividend payment:
- Cash payment: The company pays dividends in cash according to the decision of the General Meeting of Shareholders. This form reduces the company's cash but is favored by shareholders because it is a real asset, reflecting the company's financial capacity.
- Pay by stock: The company issues additional shares to pay dividends instead of using cash. This method helps the company maintain operating cash flow and is often applied by businesses in the growth stage.
- Bonus shares: Similar in nature to stock dividends, but bonus shares are often a special reward for shareholders.
- Dividend obligations (debt instruments): Some businesses use promissory notes or promises to pay at a specific time in the future to pay dividends.
Difference between dividends and bonus shares: Shareholders usually prefer to receive dividends in cash because this is the real value, showing the strength of the business. Meanwhile, payment in shares including bonus shares is often applied by new or growing businesses to retain cash flow and encourage long-term commitment of shareholders.
Thus, dividends and bonus shares are different in nature, implementation, and benefits received by shareholders.
What are the frequently asked questions about bonus share issuance?
Can bonus shares be sold?
Once the shares have been fully paid, the company will issue and transfer the shares to the owners. Therefore, the company can sell the shares without necessarily transferring the shares immediately.
How long does it take for bonus shares to be in the account?
As a rule, when you receive dividends in the form of shares or bonus shares from a company, these shares will be transferred to your securities account within 1 to 2 months after the dividend date. After that, you can trade these shares on the market.
Here is detailed information about the concept. What is bonus stock? and how to account for bonus shares. The accounting process will vary depending on the issuance ratio and its impact on equity. If you need further information or assistance with bonus share accounting, please contact HVA to receive dedicated and professional advice.
