WHAT ARE SHARES - ISSUE OF SHARES (COME LEARN WITH CREATAPEDIA)
A unit of ownership that represents an equal proportion of a company's assets. It entitles its holder (the shareholder) to provide an equal distribution in any profits that are declared in the form of dividends. The two main types of shares are common shares and preferred shares.
Two major types of shares are :
(1) ordinary shares (common stock), which entitle the shareholder to share in the earnings of the company as and when they occur, and to vote at the company's annual general meetings and other official meetings.
(2) preference shares (preferred stock) which entitle the shareholder to a fixed periodic income (interest) but generally do not give him or her voting rights.
In this contemporary era physical paper stock certificates have been replaced with an electronic recording of stock shares, just as mutual fund shares are recorded electronically.
. ISSUE OF SHARES
Share issue is the process by which companies bring new shares to shareholders. Companies can issue shares to both inhabitants or corporate bodies. Alongside the issue of shares, you may recognize the term ‘share allotment’ used while there can be a definite distinction between issuing shares and allotting them.
. ISSUE OF BONUS SHARES
There is a definite difference between bonus and bonus shares. A bonus is a surplus added in the salary of an employee or a worker and bonus shares is meant by the bonus of the shares distributed among existing shareholders at free of cost.
The issue of bonus shares is executed by the company instead of sharing dividend among shareholders is done so to resist inflow and outflow of cash or in other words, bonus shares are widely accepted by the financial bodies for there shareholders to keep the cashflow inact.
. WHAT IF COMPANY DISTRIBUTE EXTRA DIVIDENDS AMONG SHAREHOLDERS INSTEAD OF ISSUING BONUS SHARES?
Suppose a financial body is distributing 60% of its income among shareholders, however, their competitors are distributing 30% of profit among shareholders so it could be surely make out that shareholders will get delighted and they will spread a positive news towards that particular company and people will definitely invest their money in that particular company to mushroom their returns. But from next year the shareholders will never get satisfied if the company is providing 40% return to the company because they are in a habit of accepting 60% from the profit so they will never satisfy themselves in lesser percentage than that.
Another most important demerit of providing extra dividend is that companies employees may rebel against their company because they are conferring their time, efforts and strategy to improve the profit level of the company and when the company surges its profit levels it is distributed among shareholders and providing no bonus to them which could make them dejected and may lead to strikes in the company with which the company may get severely affected.
The dividend could be in the form of cash, cheque or dividend warrant but bonus shares could be in the form of shares or equity shares form realized free reserves, realized capitalized redemption reserves and security premium. For example company A is providing bonus shares to its shareholders in 3:4, which means that for every 4 shares of shareholder they will get the bonus of 3 shares. If a shareholder John had purchased 400 shares in year 2015 and company had released bonus shares in 2017 than John will have 700 shares after recieving the bonus.
. ISSUE OF RIGHT SHARES
If a company is issuing new shares, so before distributing it among new shareholders the existing shareholders have first right to purchase those shares or renounce them to somebody else to preserve their dilution.