Bonus Share

A bonus share is a free additional share given to existing shareholders of a company based on the number of shares they already hold. Companies issue bonus shares as a way to distribute profits to shareholders without paying cash dividends. Bonus shares increase the total number of shares outstanding while reducing the price per share, which can make the shares more affordable and attractive to investors.

Example

A company announces a 1:5 bonus share issue, meaning shareholders will receive one additional share for every five shares they own. If a shareholder has 100 shares, they will receive 20 additional shares, totaling 120 shares.

Key points

• Bonus shares are free additional shares issued to existing shareholders.

• Issued in proportion to the number of shares already held.

• Increases the number of shares outstanding, reducing the share price but not the company’s value.

Quick Answers to Curious Questions

Why do companies issue bonus shares?

Companies issue bonus shares to reward shareholders, increase share liquidity, and make the shares more affordable without using cash reserves.

How does receiving bonus shares affect a shareholder’s ownership?

It increases the number of shares a shareholder owns but does not change their overall percentage ownership in the company.

What impact do bonus shares have on the stock price?

The share price typically decreases proportionally to the number of bonus shares issued, so the overall value of a shareholder’s investment remains unchanged.