What happens when a company issues bonus shares?
Matthew Harrington
Updated on January 05, 2026
Because issuing bonus shares increases the issued share capital of the company, the company is perceived as being bigger than it really is, making it more attractive to investors. In addition, increasing the number of outstanding shares decreases the stock price, making the stock more affordable for retail investors.
When a company issues bonus shares how does it impact the balance sheet?
Bonus shares are paid for out of a company’s accumulated profits and can be issued as an alternative to dividends. The effect of a bonus issue in a company’s balance sheet is to transfer a sum equivalent to the nominal value of the bonus shares from ‘profits for distribution’ to ‘share capital’.
How does bonus issue work?
Bonus issue occurs when additional (free) shares are given to the existing shareholders, based on the number of shares they already have. For instance, if a company declares a 3:1 bonus, you will generally get 3 bonus share for each share you own.
Why would a company issue bonus shares?
Companies issue bonus shares to encourage retail participation and increase their equity base. When price per share of a company is high, it becomes difficult for new investors to buy shares of that particular company. Increase in the number of shares reduces the price per share.
What is the benefit of bonus shares?
Bonus shares give positive sign to the market that the company is committed towards long term growth story. Bonus shares increase the outstanding shares which in turn enhances the liquidity of the stock. The perception of the company’s size increases with the increase in the issued share capital.
Which companies are giving bonus shares in 2020?
Bonus
| COMPANY | Bonus Ratio | DATE |
|---|---|---|
| Tiaan Consumer | 1:4 | 06-03-2020 |
| Keerti Knowledg | 21:10 | 20-05-2020 |
| Macpower | 2:100 | 22-05-2020 |
| Veeram Sec | 134:100 | 26-02-2020 |
What are the advantages of bonus shares?
What is the purpose of a bonus issue?
Bonus issues of shares stem from accumulated profits and reserves. In effect excess profits are converted into shares and are distributed to existing shareholders free of charge.
Why would a company buy back shares?
The effect of a buyback is to reduce the number of outstanding shares on the market, which increases the ownership stake of the stakeholders. A company might buyback shares because it believes the market has discounted its shares too steeply, to invest in itself, or to improve its financial ratios.
Who is eligible for bonus shares?
Bonus shares are available to shareholders who own the firm’s stock prior to the record date and the ex-date determined by the company. For the delivery of shares in India, the T+2 rolling system is used, in which the ex-date is two days before the record date.
What is bonus share when it is issued?
A bonus issue is an offer given to the existing shareholders of the company to subscribe for additional shares. Instead of increasing the dividend payout, the companies offer to distribute additional shares to the shareholders. For example, the company may decide to give out one bonus share for every ten shares held.
What happens when company buy back shares?
A stock buyback, also known as a share repurchase, occurs when a company buys back its shares from the marketplace with its accumulated cash. A stock buyback is a way for a company to re-invest in itself. The repurchased shares are absorbed by the company, and the number of outstanding shares on the market is reduced.
Can a company buy back its shares?
A share buyback is a transaction between an existing shareholder and a company. The company can repurchase its shares at any price.
Are bonus shares profitable?
Advantages of Bonus Shares When the company makes huge profits, its stock prices go up. As a result, the bonus shares fetch handsome profits to its shareholders when transacted in the secondary markets for liquidity.
Which companies will giving bonus shares in future?
List Of Companies Issuing Bonus Shares in India 2021
| Company name | Proportion | Record date |
|---|---|---|
| Maan Aluminium | 1:1 | 03-Aug-2021 |
| Tide Water Oil Co(I) | 1:1 | 27-Jul-2021 |
| Tiaan Consumer | 59:100 | 22-Jul-2021 |
| Sadhana Nitro Chem | 2:5 | 21-Jul-2021 |
Which company will give bonus shares in 2020?
Is it good to buy bonus shares?
Companies issue bonus shares to increase the number of equity shares in the market. It makes the company look attractive to investors and make shares affordable to investors by lowering sgare price.
When should a company buy back stock?
A company may choose to buy back outstanding shares for a number of reasons. Repurchasing outstanding shares can help a business reduce its cost of capital, benefit from temporary undervaluation of the stock, consolidate ownership, inflate important financial metrics, or free up profits to pay executive bonuses.
When the bonus shares are issued, the number of shares the shareholder holds will increase, but an investment’s overall value will remain the same. No of shares held before bonus. Several shares held after Bonus. There is a bonus announcement date, ex-bonus date, and record date similar to the dividend issue.
What happens when a company issues more shares?
When companies issue additional shares, it increases the number of common stock being traded in the stock market. For existing investors, too many shares being issued can lead to share dilution. Share dilution occurs because the additional shares reduce the value of the existing shares for investors.
Why do companies issue bonus shares?
Bonus
| COMPANY | Bonus Ratio | DATE |
|---|---|---|
| Anuh Pharma | 1:1 | 07-08-2020 |
| Sadhana Nitro | 1:2 | 28-07-2020 |
| Shradha Infra | 5:100 | 04-08-2020 |
| GGL | 5:6 | 27-07-2020 |
What does it mean when a company sells more shares?
If a company raises capital by selling more shares, the result is a dilution of the holdings of existing shareholders. On the surface, this action should result in a share price drop.
Why does a company issue bonus shares? A company issues bonus shares to increase liquidity of the stock and increase participation of investors. Secondly, the stock price drops to a reasonable range post a bonus issue, which makes it affordable for investors to purchase more shares.
What does it mean when a company has a bonus issue?
Updated Mar 29, 2019. A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders. A company may decide to distribute further shares as an alternative to increasing the dividend payout.
How does issuing bonus shares affect share capital?
Issuing bonus shares does not involve cash flow. It increases the company’s share capital but not its net assets. Bonus shares are issued according to each shareholder’s stake in the company. For example, a three-for-two bonus issue entitles each shareholder three shares for every two they hold before the issue.
When was the last time bonus shares were issued?
The last two have been in April 2006 and Oct 2014. Look at the price chart and particularly what happened on the record date (date when the “new” shares came into effect) Both the last two bonus issues were 1:1, meaning 1 bonus share for every 1 existing share, thus doubling the number of shares in circulation.
What’s the difference between bonus issue and scrip issue?
A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders. A company may decide to distribute further shares as an alternative to increasing the dividend payout. For example, a company may give one bonus share for every five shares held.
