Bonus issue

A bonus issue, also known as a bonus share issue or scrip issue, is a corporate action in which a company distributes additional shares to its existing shareholders without requiring them to make an additional payment. Bonus shares are generally issued in a predetermined proportion to the number of shares already held by each eligible shareholder.

A bonus issue increases the number of shares outstanding and the company's paid-up share capital, while the corresponding amount is transferred from eligible reserves or securities premium to share capital. It does not, by itself, increase the company's total assets or the shareholder's wealth.

Mechanism

A bonus issue is expressed as a ratio that indicates the number of additional shares allocated for each existing share held. For example, a 1:1 bonus issue gives one additional share for every share already owned.

The bonus shares are allotted to shareholders who qualify under the company's announced eligibility criteria, generally determined by reference to the record date.

Example

An investor owns 100 shares of a company trading at ₹500 per share. The company announces a 1:1 bonus issue.

Particulars	Before bonus issue	After bonus issue
Number of shares held	100	200
Market price per share	₹500	Approximately ₹250
Total investment value	₹50,000	Approximately ₹50,000

The theoretical post-issue price is approximately half the pre-issue price, assuming no other market movements. Actual prices may differ because of market conditions and investor activity.

Types of bonus issues

Bonus issues are commonly described according to their allotment ratios, including:

• 1:1 bonus issue: One additional share for every share held.
• 1:2 bonus issue: One additional share for every two shares held.
• 2:1 bonus issue: Two additional shares for every share held.

In this context, the first number represents the additional shares issued and the second represents the existing shares required to qualify for them.

Reasons for a bonus issue

Companies may issue bonus shares for several reasons:

• Capitalisation of reserves: To convert eligible accumulated reserves or securities premium into share capital.
• Shareholder distribution: To distribute additional shares to existing shareholders without a cash payment.
• Marketability: To increase the number of shares available to investors, potentially improving trading accessibility.
• Investor signalling: To communicate management's confidence in the company's financial position, although a bonus issue alone does not establish financial strength.

Effects on shareholders

A bonus issue increases the number of shares held by an investor, but the investor's proportional ownership of the company generally remains unchanged. The market price per share is expected to adjust downward in proportion to the increase in the number of shares, all else being equal.

Earnings per share generally decline proportionately if the company's earnings remain unchanged, because those earnings are distributed across a larger number of shares. Dividends per share may also change, depending on the company's dividend policy and total distribution.

A bonus issue does not automatically create additional economic value for shareholders. The actual investment value continues to depend on the company's financial performance and market valuation.

Bonus issue in India

In India, listed companies issue bonus shares subject to applicable provisions of the Companies Act, 2013, and regulations issued by the Securities and Exchange Board of India (SEBI). Such issues require compliance with applicable conditions relating to corporate authorisation, eligible reserves, outstanding partly paid shares, and other regulatory requirements.

Companies announce the bonus ratio and relevant dates through stock exchange disclosures. The record date identifies shareholders eligible to receive the bonus shares.

Difference from a stock split

A bonus issue and a stock split both increase the number of shares held by shareholders, but they differ in their accounting treatment and purpose.

Feature	Bonus issue	Stock split
Mechanism	Additional shares are allotted from eligible reserves or securities premium.	Existing shares are subdivided into a larger number of shares.
Face value per share	Generally remains unchanged.	Reduced proportionately.
Share capital and reserves	Share capital increases and eligible reserves decrease correspondingly.	No corresponding transfer from reserves to share capital occurs solely because of the split.
Shareholder payment	No additional payment is required.	No additional payment is required.

See also

• Stock split
• Dividend
• Share capital
• Corporate action