NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets
In equity market terminology, a 'bonus issue' differs from a 'stock split' mainly because in a bonus issue:
In a bonus issue, the company capitalises its free reserves and issues additional shares to existing shareholders at no cost, with face value unchanged. A stock split instead reduces the face value per share without using reserves.
- AThe face value of each share is reduced
- BFree reserves are capitalised and additional shares are issued to existing shareholdersCorrect
- CNew shares are offered to the public at a premium
- DThe company buys back shares from shareholders
Explanation
A bonus issue capitalises free reserves into share capital and gives additional shares without payment, keeping face value unchanged. A split reduces face value instead. A premium public offering describes a fresh issue and buy-back is a different action.
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