What is a Bonus Share Issue?

A Bonus Share is also known as Scrip Issue or Capitalisation Issue. Existing shareholders of the company gets free additional shares at no cost in direct proportion to the existing shares that they hold.

For example, if there is a Bonus Offer of 1 for 10, it means that the existing shareholders will receive 1 new share, for every 10 existing shares that they have.

Bonus Share issue will result in an increase of outstanding shares in the market. However, it does not cause any dilution in the shareholders’ ownership in the company.

The bonus shares are accorded from the company’s share price premium or retained earnings. Retained earnings are the net profits accumulated over the years and are not paid out in dividends to shareholders.

The conversion of retained earnings to paid-up share capital (Bonus Shares) is known as capitalisation of reserves. During the …