When current shareholders are issued additional shares without any additional cost, such shares are called Bonus Shares.
These are based on the number of shares already held by the investor. Bonus shares are given from the company’s accumulated earnings, when the company does not want to pay a dividend to the shareholders.
Advantages of Bonus Shares
Advantages of Bonus Shares are:
For Investors
1) There is no tax on receiving bonus shares from the company.
2) Beneficial for long-term wealth creation.
3) Bonus shares help in creating more liquidity.
For Company
1) Bonus shares enhance the company’s brand value and image in the market and help in attracting new investors.
2) Companies will have more free-floating shares with the addition of Bonus shares.
3) Bonus shares prevent companies from paying cash dividends.
