Question

Kriya Ltd. wants to issue fully paid-up shares to its existing shareholders, whereas Aakash Ltd. plans to issue new shares to its existing shareholders for increasing the subscribed capital of the company. Name the types of securities which Kriya Ltd. and Aakash Ltd. want to issue. Contrast these securities on any two bases.

Hint:

Bonus shares increase the number of shares but do not raise capital, whereas right shares are issued to raise fresh funds from shareholders.

Answer 1

Types of securities: -
Kriya Ltd. wants to issue
Bonus Shares to its existing shareholders. -
Aakash Ltd. plans to issue
Right Shares to its existing shareholders.
Contrasting the securities:

• 
  Basis 1: Purpose of Issue
  • 
    Bonus Shares: These shares are issued to existing shareholders free of charge, typically out of the company’s retained earnings or reserves, as a form of dividend reinvestment.
  • 
    Right Shares: These shares are offered to existing shareholders at a discounted price to raise additional capital for the company.
• 
  Basis 2: Impact on Shareholding
  • 
    Bonus Shares: Issuing bonus shares does not raise any fresh funds, and the ownership percentage of shareholders remains unchanged.
  • 
    Right Shares: The issue of right shares allows the company to raise funds, and shareholders can increase their shareholding by subscribing to the new shares.