Distinguish Between Rights Shares and Bonus Shares | 12th HSC Secretarial Practice (S.P.) Chapter 3
The distinction between Rights Shares and Bonus Shares is a very important question from Maharashtra State Board (MSBSHSE) 12th Standard HSC Secretarial Practice (S.P.) Chapter 3: Issue of Shares. Both types of shares are issued to existing equity shareholders, making their comparison a favourite topic for examiners in Question 4 (Distinguish Between) carrying 4 Marks. Below is the complete, textbook-accurate tabular solution strictly aligned with the latest Balbharati Textbook and official board marking scheme.
Board Exam Marking Scheme Tip: Each Distinguish Between question in Q.4 carries 4 Marks (1 mark per valid point). Always present your answer in a neat 3-column table including the Basis of Distinction. Write at least 5 to 6 clear points (starting with Meaning, Payment / Consideration, Partly / Fully Paid-up Shares, and Right to Renounce) to guarantee a full 4 out of 4 score!
Distinguish Between: Rights Shares and Bonus Shares
| Sr. No. | Basis of Distinction | Rights Shares | Bonus Shares |
|---|---|---|---|
| 1. | Meaning | In a Rights Issue, when a company wants to raise further capital, the existing equity shareholders are given the first right (pre-emptive right) to subscribe for the newly issued shares. | Bonus Shares are fully paid-up shares issued free of cost to the existing equity shareholders out of the accumulated profits and free reserves of the company. |
| 2. | Payment / Consideration | Subscribers have to pay money for buying Rights Shares (usually at a price slightly lower than the current market price). | Bonus Shares are issued completely free of cost to the existing equity shareholders; shareholders do not pay anything. |
| 3. | Partly / Fully Paid-up Shares | Shareholders have to pay for these shares as Application Money, Allotment Money, and Call Money till the shares become fully paid-up. Hence, they may be partly paid-up initially. | Bonus Shares are always fully paid-up shares right from the time of issue. No partly paid-up bonus shares can be issued. |
| 4. | Minimum Subscription | The company has to obtain minimum subscription. If the shareholders fail to subscribe to the minimum subscription, the company has to refund the entire money received. | Since Bonus Shares are issued free of cost by capitalizing reserves, there is no requirement of minimum subscription. |
| 5. | Right to Renounce | The existing shareholders can renounce (give up or transfer) their Rights Shares wholly or partly in favour of another person. | Existing shareholders cannot renounce their Bonus Shares in favour of another person. |
| 6. | Purpose of Issue | Rights Issue is done by a company when it wants to raise fresh funds (additional capital) for expansion or business operations. | When a company has accumulated huge profits or reserves and wants to reward its existing equity shareholders without paying cash, it issues Bonus Shares. |
| 7. | Impact on Cash Flow | It brings fresh cash inflow into the company and increases the issued share capital. | It does not bring any fresh cash into the company; it simply converts free reserves into share capital (Capitalization of Reserves). |
| 8. | Governing Section | Rights Issue is governed by Section 62(1)(a) of the Companies Act, 2013. | Bonus Issue is governed by Section 63 of the Companies Act, 2013. |
Quick Memory Trick to Remember All Points in the Exam
Memory Shortcut (Mnemonic — "MP-PMR-P"):
Remember these 6 easiest points from the Balbharati textbook to write in under 4 minutes:
1. Meaning (First Right to Subscribe vs. Free Shares Out of Accumulated Profits)
2. Payment (Shareholders Have to Pay Money vs. Issued Completely Free of Cost)
3. Partly / Fully Paid-up (Can Be Partly Paid-up vs. Always Fully Paid-up)
4. Minimum Subscription (Minimum Subscription Required vs. Not Required)
5. Right to Renounce (Shareholders Can Renounce vs. Cannot Renounce)
6. Purpose of Issue (To Raise Fresh Capital vs. To Capitalize Reserves & Reward Members)
Key Concept Summary for Objective Questions (Q.1)
- Pre-emptive Right: The right of existing equity shareholders to be offered new shares first in proportion to their existing shareholding is called the "Pre-emptive Right" (Rights Issue).
- Document Sent for Rights Issue: A company sends a "Letter of Offer" to existing equity shareholders at least 3 days before the opening of the Rights Issue, and the offer must remain open for a minimum of 15 days and a maximum of 30 days.
- Capitalization of Profits / Reserves: Issuing Bonus Shares is also known as "Capitalization of Profits or Reserves" because the company's undistributed profits are permanently ploughed back into share capital.
- Prohibition on Bonus Issue: A company cannot issue Bonus Shares in lieu of (instead of) dividend, nor can it issue Bonus Shares out of reserves created by the revaluation of assets.