A bonus issue, also known as a bonus share issue or scrip issue, is a corporate action in which a company issues additional shares to its existing shareholders at no cost. These bonus shares are distributed to shareholders in proportion to their current shareholding.
The purpose of a bonus issue is to reward existing shareholders and increase the liquidity of the company’s shares in the market. The company utilizes its accumulated reserves, such as retained earnings or share premium, to issue these bonus shares.
NOTE: In Corporate Finance, Bonus Shares are viewed as a variant of share split and other than improving liquidity, there is essentially no positive or negative effect of bonus shares
When a bonus issue occurs, the number of outstanding shares increases while the share capital and reserves of the company remain the same. As a result, the price per share usually adjusts to reflect the increased number of shares, but the overall value of the shareholders’ investment remains unchanged.
Shareholders who receive bonus shares can choose to hold them as additional investment or sell them in the market. Bonus issues are typically seen as a positive signal by investors, indicating the company’s confidence in its future prospects and its desire to reward shareholders.
Effect:
No of shares increases, shares price gets reduced.
Total Equity will be same >>> (Within Equity, share capital par value increases and share premium gets reduced)
The broad effect is the same as a share split
