# Bonus Shares vs Right Shares: Companies Act 2013 Guide
> Explore the mechanisms of bonus and right shares under the Companies Act, 2013. Learn about legal provisions, capitalization of reserves, and raising capital.

Tags: corporate-finance, companies-act-2013, bonus-shares, right-shares, capital-management, equity-issuance
## Bonus Shares & Right Shares
* Understanding share issuance mechanisms under the Companies Act, 2013: issue, impact, and implications.

## Bonus Shares: Meaning & Nature
* Issued free of cost by converting accumulated reserves into share capital.
* No new funds enter the company; net worth remains unchanged.
* Example: In a 1:1 bonus issue, a shareholder gets 100 additional shares for every 100 held.

## Bonus Shares: Objectives & Sources
* Objectives: Capitalization of profits, rewarding shareholders, and improving marketability.
* Legal Sources: Free reserves, Securities Premium Account, and Capital Redemption Reserve.
* Prohibited: Cannot be issued from revaluation reserves.

## Legal Provisions (Section 63)
* Must be authorized by Articles of Association (AOA).
* Requires Board and Shareholder approval.
* Company must not have defaulted on debt interest, principal, or employee statutory dues.

## Right Shares: Meaning & Nature
* Additional shares offered at a concessional (discounted) price to existing shareholders.
* Results in a fresh inflow of funds into the company.
* Shareholders have the right to accept, reject, or renounce.

## Right Shares: Legal Provisions (Section 62)
* Offered proportionally to existing shareholders.
* Requires a notice specifying the number of shares and a minimum 15-day response window.
* Cost-effective way to fund expansion and avoid public issue costs.

## Comparison: Bonus vs Right Shares
* **Nature:** Bonus is free; Right is at a concessional price.
* **Cash Flow:** Bonus has no inflow; Right brings in fresh capital.
* **Purpose:** Bonus capitalizes reserves; Right raises expansion capital.
* **Obligation:** Bonus has no payment required; Right requires payment to subscribe.
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