Bonus Share vs Stock Split – What’s the Difference?

Bonus Share vs Stock Split are both corporate actions that increase the number of shares, which helps the investor and reduces the price per share. Here we will explore the difference between Bonus Share vs Stock Split.

What is Bonus Share?

It is a corporate action where a company distributes additional shares to its existing shareholders at no extra cost. It is based on the number of shares they already own. These are issued out of a company's retained earnings or reserves.

Key features of Bonus Shares:

They increase the total number of shares held.
These issues in ratio, like 1:1, 2:1, etc.
There is no monetary cost to shareholders.
They don’t affect the company's market capitalization.

What is a Stock Split?

It is a corporate action that involves dividing the company's existing stock into multiple shares to lower the trading price of individual shares. It reduces the face value of the stock while keeping the market capitalization the same.

Key features of Stock Splits:

They reduce the stock’s price.
Split ratio is commonly done in this, like 5:1, 6:1, etc.
This increases the number of shares outstanding.
They do not alter shareholders' overall value.

Difference Between Bonus Share vs Stock Split

Here are the differences between Bonus Share and Stock Split:

Aspect	Bonus Share	Stock Split
Source	The company’s reserves/profits.	There is no change in reserves or capital.
Share Capital	The share capital increases.	There is no change in share capital.
Purpose	The purpose of this is to reward shareholders and use surplus reserves.	The purpose of this is to increase liquidity, make shares affordable.
Accounting Entry	Their reserves were transferred to share capital.	There is no accounting transfer.
What Happens	In this, the extra shares are issued free to shareholders.	In this, the existing shares are divided into smaller units.
Face Value	The face value of the bonus remains the same.	The face value decreases in a split ratio.
Share Price	The share price falls in proportion to the bonus ratio.	The share price falls in proportion to the split ratio.
Impact on Value	There is no change in total investment value.	There is no change in total investment value.

Conclusion

In conclusion, understanding the difference between bonus shares and stock splits is crucial for making informed investment decisions. They are positive signals indicating a company's growth and a shareholder-friendly approach. We hope this blog has been helpful to you.

About the Author

Saniya

I am a writer, and this sentence speaks louder than anything, I love to play with words because I have a passion for writing easy and good-quality content that reflects simplicity. Readers like content that is straightforward with simple language. My priority has always been to deliver content that connects with the reader.

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