Question

Distinguish between the following:

Rights Shares and Bonus Shares

Answer 1

Points	Rights Shares	Bonus Shares
Meaning	In rights issues, shares are offered to the existing equity shareholders, i.e., the company offers the shareholders the first option to buy the shares of the company.	Bonus shares are issued to the existing equity shareholders free of cost.
Payment	Subscribers have to pay for the Rights Shares. The company only gives them the right to buy these shares.	Bonus shares are issued free of cost to the shareholders.
Partly/fully paid-up shares	Shareholders have to pay for these shares as Application Money, Allotment, Call Money, etc. till the full money on shares is paid up.	Bonus shares are fully paid-up shares. So no money has to be paid by the shareholders to the company.
Minimum Subscription	The company has to obtain a minimum subscription. If the company fails to receive a minimum subscription, it has to refund the entire application money received.	There is no minimum subscription to be collected as Bonus shares are issued free of cost by the company.
Right to Renounce	The shareholders can renounce their shares.	Shareholders cannot renounce their bonus shares.
Purpose of Issue	The rights issue is done by a company when it wants to raise fresh funds but wants to give a chance to its existing members to increase their shareholding.	When a company has accumulated huge profits or reserves and the company wants to reward its existing equity shareholders, the company issues bonus shares.