bonus shares

9. What is meant by bonus shares?

Bonus shares are extra shares a company gives to its current shareholders for free. Companies do this instead of paying cash dividends. You get these shares based on what you already own. If the ratio is 1:1, you get one free share for every share you have. [1, 2, 3, 4]

How it Works

Instead of giving out cash, a company takes its past profits (called "reserves") and turns them into new shares. Think of a birthday cake. If you cut the cake into smaller slices, you have more pieces, but the total amount of cake stays the same. [5, 6, 7]

Key Rules and Facts

No Extra Cost: You do not pay anything to get the new shares.
Same Value: Your slice of the company does not change. If you owned 1% of the company before the bonus, you still own 1% after.
Price Drop: The price of each share drops to keep the total value equal. If a share costs $100 and you get a 1:1 bonus, you now have 2 shares worth $50 each.
More Liquidity: Having more, cheaper shares makes them easier for everyday people to buy.
Tax Free: You generally do not pay taxes when you receive the bonus shares. You only pay taxes if you sell them later. [2, 5, 8, 9, 10]