 | This article needs additional citations for verification. (March 2007) |
Bonus shares are shares distributed by a company to its current shareholders as fully paid shares free of charge.[1]
- to capitalise a part of the company's retained earnings
- for conversion of its share premium account, or
- distribution of treasury shares.
An issue of bonus shares is referred to as a bonus share issue.
A bonus issue is usually based upon the number of shares that shareholders already own.[2] (For example, the bonus issue may be "n shares for each x shares held"; but with fractions of a share not permitted.) While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company. Although the total number of issued shares increases, the ratio of number of shares held by each shareholder remains constant. In this sense, a bonus issue is similar to a stock split.
- ^ "Section 63 of Companies act 2013 - Issue of bonus shares". India: Corporate Law Reporter. April 1, 2014.
- ^ "Definition of 'Bonus Share'", "The Economic Times"