By way of .............. company can keep its shareholders happy without impairing the financial position and liquidity of the company.

The correct answer is - Issue of Bonus Share

Key Points

• Issue of Bonus Share
  • When a company issues bonus shares, it distributes its accumulated profits to shareholders in the form of additional shares instead of cash dividends.
  • This method ensures that the company’s cash reserves and liquidity remain unaffected.
  • Bonus shares help in keeping shareholders satisfied as they receive additional shares, increasing their stake in the company without any additional investment.
  • The issuance of bonus shares is often perceived as a sign of the company’s financial health and its ability to generate profits.

Additional Information

• Alternative Options Explained
  • Issue of Right Share
    • Right shares are offered to existing shareholders at a discounted price, requiring them to invest additional funds.
    • This does not preserve the liquidity of the company as it involves raising fresh capital.
  • Red Herring Prospectus
    • A red herring prospectus is a preliminary document issued during an IPO, not related to shareholder satisfaction or liquidity.
  • Opening Escrow Account
    • An escrow account is used to hold funds temporarily during transactions and is unrelated to managing shareholder satisfaction or liquidity.
• Advantages of Bonus Shares
  • Bonus shares increase the company’s equity base, which can enhance its market perception.
  • It rewards shareholders without impacting the company’s cash flow.
  • It signals the company’s confidence in its ability to generate future profits.