1.Bonus shares are issued to existing shareholders by the company without any payment from them.
2.Existing shares decide the number of bonus shares. A bonus issue in 1:3 ratio entitles one to a bonus share for every three shares held.
3.The company makes the bonus issue out of its free reserves built from genuine profits and are an alternate to cash dividends.
4.A company cannot offer bonus issue if it has defaulted on payment of interest and/or principal on any debt security issued or any fixed deposit raised.
5.The shareholders’ proportionate ownership remains unchanged but the number of shares held by them goes up.
Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.
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