When issuing bonus shares, the face value does not change. But when splitting the shares, the face value reduces in the same ratio.
So why do companies even split the share, when it reduces the face value? Not that FV matters, but seems that they can have it at a constant price by giving bonus shares instead of splitting.
BONUS is increase in serviceable equity capital of co , Reduction in reserves , more equity in shareholders hand . same face value same ISIN
Split is no increase in serviceable equity , no impact on reserves , more floating shares in market with change in face value and isin . it is perogative of company to issue bonus or split…from ex date SPLIT IS IN CONTINUES TRADE wherein bonus take few days to list .
in a way Split is much better than bonus . however when capitalization of reserves required bonus is issued .
Well to issue bonus share, SEBI has laid down certain guidelines, and company need to meet that to be eligible for bonus issue.
One of the primary requirement is:
The bonus issue shall be made out of free reserves built out of the genuine profits or share premium collected in cash only.
So if company does not have sufficient free reserve they cannot issue bonus.
Also, while technically bonus only looks like doubling of share count and halving of share price (1:1 bonus) there are lot of technicalities involved. What is being done is money earned by company (free reserve) so far is beiong converted to capital.
While reserve can be easily taken out (by declaring dividend) taking capital out is not that easy.
So if this all is not possible, or promoter does not want the capital committed, doing a split is easier option.