Bonus Share
Bonus Share
A bonus share—often termed a capitalization share—is an
additional share given to existing shareholders when a company looks to expand
its capital base. It increases an investor's overall share count, providing
them with the opportunity to earn higher aggregate dividends in the future.
When a company builds up substantial undistributed profits
in its reserves, it converts those surplus funds into equity by distributing
these shares. Bonus shares are allocated proportionally according to an
investor's existing holdings, and a company must wait at least 12 months
following an issuance before it can issue bonus shares again.
Benefits of Bonus Shares
Bonus shares do not usually provide shareholders with an
immediate financial gain. They are issued to existing shareholders when a
company converts part of its accumulated reserves into additional shares.
Rather than distributing those reserves as dividends, the company allocates
them to shareholders in the form of bonus shares.
A bonus share issue (also
called a scrip dividend or capitalization of reserves) is when a company
distributes additional free shares to its existing shareholders in proportion
to their current holdings.
A bonus share issue (also called a scrip dividend or capitalization of
reserves) is when a company distributes additional free shares to its existing
shareholders in proportion to their current holdings.
Example: -
Suppose you own 100 shares in a
company, and it announces a 1:1 bonus issue. You receive one bonus share
for each share you own, so you get 100 additional shares and now hold 200.
The bonus shares are issued from the company’s reserves.
Your ownership percentage generally stays the same, while the market price per
share may adjust to reflect the increased number of shares.
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