I am studying commerce and we recently learnt about Bonus Shares and Rights Shares in the company. But I am having a hard time understanding the exact difference between the two. Can someone please explain in simple terms how Bonus Shares and Rights Shares differ from each other?
Bonus shares are issued to the existing shareholders from the company’s free reserves, they do not require payment from the shareholders. Rights shares require the shareholders to pay for the shares.
Bonus shares are fully paid while rights shares require some payment. So bonus shares are basically a gift from the company to the existing shareholders.
Rights shares allow existing shareholders the right but not the obligation to purchase additional shares in the company, in proportion to the number of shares they already own. Bonus shares are issued free of cost based on the shares already held.
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