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Q. What is Bonus Issue?
A company will distribute these shares to reward its current shareholders by providing fully paid shares at no cost in order to capitalise a portion of the company’s retained earnings. The bonus share can be distributed in any ratio. For example, a company may offer 2:5 bonus shares. The ratio can be read as follows: every shareholder who owns 5 shares of the company will be eligible for two additional shares at no cost. Giving out bonus shares can be a step in the direction to encourage retail investors when stock prices are high. By issuing bonus shares, the face value of the share remains constant while the number of shares increases, resulting in a decrease in the stock’s price