Bonus Issue vs Stock Split

A bonus issue, also referred to as a bonus share issue, involves the issuance of additional equity shares to existing shareholders through the capitalisation of accumulated reserves. The number of bonus shares allotted is determined based on a predefined ratio relative to the shares already held. This corporate action increases the number of outstanding shares while transferring an equivalent amount from reserves to share capital, without introducing fresh funds into the company.

For example, under a 1:5 bonus ratio, a shareholder holding five equity shares becomes entitled to one additional share, resulting in an increase in total shareholding in accordance with the approved ratio, while the company’s aggregate valuation remains unchanged at the time of issuance.

A stock split occurs when a company subdivides its existing equity shares into a larger number of shares by adjusting the face value per share. This process increases the number of outstanding shares while proportionately reducing the per-share price, without altering the company’s paid-up share capital or aggregate market capitalisation at the time of execution.

For example, in a 2-for-1 stock split, each existing share is subdivided into two shares, and the face value and market price per share are adjusted accordingly. While the number of shares held increases, the overall valuation of the shareholding remains aligned with the adjusted share price.

The difference between stock split and bonus share lies in how each corporate action alters share capital, face value, and the treatment of reserves under company law.
 

Purpose

Bonus Issue

• Issued through capitalisation of reserves or surplus

• Results in an increase in paid-up share capital

• Does not involve any cash outflow from the company

• Requires sufficient free reserves as per regulatory provisions

Stock Split

• Involves subdivision of existing shares into smaller units

• Alters the face value per share

• Does not change the total paid-up share capital

• Executed through amendments to the company’s share capital structure
   

Structural Comparison

• Effect on Shareholding
  

  • Bonus Issue: Existing shareholders receive additional shares in a fixed ratio

  • Stock Split: Existing shares are subdivided into multiple shares
    

• Change in Share Price
  

  • Bonus Issue: Market price adjusts proportionately based on the revised number of shares

  • Stock Split: Market price adjusts in line with the revised face value
    

• Face Value of Shares
  

  • Bonus Issue: Face value may remain unchanged

  • Stock Split: Face value is reduced proportionately
    

• Impact on Capital Structure
  

  • Bonus Issue: Reserves are transferred to share capital

  • Stock Split: No transfer between reserves and share capital

Example

• Bonus Issue Example
  

  • Bonus ratio: 1:1

  • Shares held before issue: 100

  • Shares held after issue: 200

  • Total investment value remains aligned with market adjustment
    

• Stock Split Example
  

  • Split ratio: 1:2

  • Face value before split: ₹10

  • Face value after split: ₹5

  • Number of shares doubles, while aggregate value remains unchanged
     

Frequency and Regulatory Context

• Bonus Issue
  

  • Subject to availability of eligible reserves

  • Governed by provisions of the Companies Act, 2013 and SEBI regulations
    

• Stock Split
  

  • Subject to shareholder approval and compliance disclosures

  • Implemented through corporate action filings with stock exchanges

A bonus issue results in an increase in the number of outstanding equity shares through the capitalisation of accumulated reserves. While the share count rises, the company’s total equity remains unchanged at the time of issuance, as reserves are transferred to share capital. This adjustment affects per-share metrics such as earnings per share due to the expanded share base, without involving any cash movement.

The increase in outstanding shares may also influence secondary market trading activity, as a larger share base becomes available for exchange following the corporate action.

A stock split leads to an increase in the number of outstanding shares by subdividing existing shares through a reduction in face value. This action does not involve any transfer between reserves and share capital and does not alter the company’s paid-up capital at the time of execution.

Following a stock split, per-share figures such as market price and earnings per share are recalculated in proportion to the revised share count, while the company’s overall valuation remains aligned with the adjusted share structure.

• A bonus issue involves the issuance of additional equity shares to existing shareholders through the capitalisation of reserves, without altering the company’s overall valuation.
  

• A stock split involves the subdivision of existing shares into a larger number of shares by adjusting the face value, while the aggregate market capitalisation remains unchanged.
  

• In a bonus issue, the number of outstanding shares increases due to reserve conversion, whereas in a stock split, the increase in share count results from a restructuring of the share denomination.
  

• Both bonus issues and stock splits are classified as corporate actions and do not introduce fresh capital into the company.
  

• These actions primarily affect the share capital structure, outstanding share count, and per-share metrics, while leaving the company’s total equity value unchanged at the time of execution.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.