During its 47th annual general meeting (AGM), which was conducted on August 29, Reliance Industries Limited (RIL), the largest company in India based on market capitalization, made headlines. The company’s Board of Directors will meet on September 5 to discuss the issuance of bonus shares, possibly at a 1:1 ratio, according to Chairman and Managing Director Mukesh Ambani. This implies that stockholders can get one more share for free for each share they now own.
The Board of Directors will convene on September 5 to discuss issuing bonus shares in a 1:1 ratio, as per the notice sent by Reliance Industries Limited to the stock exchanges. Ambani further stated, “We are in the business of creating wealth for India and enhancing the quality of life of every Indian, every single day.”
Companies utilize bonus shares as a tactical tool to reward shareholders and increase the accessibility of their stock to a larger market. They might boost investor confidence and even draw in new investors, even though they don’t directly raise a company’s market worth.
All the information you require regarding bonus shares, their definition, and their effect on market capitalization is provided here.
Bonus shares: what are they?
Bonus shares are extra shares that are granted to current shareholders at no extra expense. In order to capitalize on their accumulated reserves and to reward shareholders, companies issue bonus shares. An announcement of a bonus issue in the ratio of 1:1, for example, indicates that a shareholder will get one extra share for each share they now possess.
What is the process for bonus shares?
The board of directors determines the ratio of bonus shares and the record date—the day on which a shareholder must be present in order to be eligible for bonus shares—when a company announces a bonus issue.
For instance, if the firm issues bonus shares at a 1:1 ratio and you already own 100 shares of RIL, you will receive an additional 100 shares, for a total of 200 shares.
Do bonus shares become taxable?
Getting bonus shares is not a taxable event for shareholders. Any gains made on the sale of these shares, though, will be subject to capital gains tax. Since there was no acquisition cost for these shares, the full sale proceeds will be recognized as a capital gain.
Why do businesses award bonus shares?
Bonus shares are mostly issued in order to lower the stock price for ordinary investors, particularly in cases where the share price has increased dramatically. Small investors may find the stock more appealing because the corporation decreases the price per share when it issues more shares. Bonus shares are also a means for businesses to express confidence in their future success and to thank its devoted shareholders.
Effects on market capitalization and share capital
It’s crucial to remember that a bonus issue raises the total number of shares in circulation but doesn’t raise the market capitalization of the business. Market capitalization, which is computed by multiplying the share price by the total number of shares outstanding, is the total market value of a company’s outstanding shares. Following a bonus issuance, the total market capitalization stays same but the share price usually declines to reflect the extra shares.
RIL to issue bonus shares: Since 1980, RIL has issued bonus shares five times, the most recent of which was in 2017. This is not the first time the company has done this. Without making any more investments, shareholders will double their stake in the company if the Board approves the scheduled 1:1 bonus issue on September 5. This action is in line with Mukesh Ambani’s remarks made during the AGM, in which he emphasized the company’s dedication to building long-term prosperity for its owners.
At no additional expense, RIL shareholders may receive important news at the forthcoming Board meeting on September 5. This news could increase their shareholding.