Question 29 of 44
Q.Distinguish between the following:
Rights Shares and Bonus Shares
Maharashtra MsbshseMaharashtra HSC (MSBSHSE) Board 2024Subjective· 4mImportance★★★★★
66% · 29/44 Questions
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Start your 14-day free trial to unlock the full solution →Rights shares are paid-for additional shares offered proportionately to existing shareholders to raise fresh capital, while bonus shares are free shares distributed out of accumulated profits/reserves. One brings in money; the other converts reserves into share capital.
Both rights shares and bonus shares are issued only to existing equity shareholders, but they serve very different objectives.
| Basis | Rights Shares | Bonus Shares |
|---|---|---|
| Meaning | Further shares offered first to existing shareholders in proportion to their holding | Fully paid shares given free to existing shareholders |
| Payment | Shareholder has to pay for them | Issued free of cost |
| Purpose | To raise additional capital | To capitalise accumulated profits and reserves |
| Source of issue | Fresh money brought in by shareholders | Company's free reserves, securities premium, capital redemption reserve |
| Effect on funds | Increases the company's cash resources | No inflow of cash; reserves are converted into capital |
| Renunciation | Shareholder may accept, reject or renounce (transfer) the right to another person | Cannot be renounced; automatically credited |
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