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What are the disadvantages of issuing bonus shares?

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Question added by Saeed Ur Rehman , Senior Manager Audit & Advisory , Afrasiab Tanveer & Co Chartered Accountants
Date Posted: 2016/08/31
kamran khalid
by kamran khalid , Head Of Finance , Pace College

Bonus Share means decrease market value per share.

Frank Mwansa
by Frank Mwansa , ACCOUNTING LECTURER , FREELANCER

Thanks for invitation 

Bonus shares are issued by companies in lieu of paying a cash dividend.

Advantages.

1. The investor doesn't need to pay tax when receiving the bonus shares

2.It is specifically beneficial for investors  who believe in the long story of the company.

3.issuing additional shares and using cash for the business growth of the company increases the investors belief in operations of the company.

3. If the company starts paying the cash dividend in the future the investors receives more because he holds a number of shares in the company.

Al Jun Solomon
by Al Jun Solomon , Accounts cum Audit Staff , Petrolier Corporation

Issuing bonus shares will result to the increase number of outstanding share capital which consequently will dilute the company's market price per share capital.

Tomasz L
by Tomasz L , Reporting Specialist , Outworking

Increase in the number of shares reduces the price per share. It will encourage speculative dealings in the company’s shares. Furthermore the rate of dividend in future will decline and may confuse investors.

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