Bonus shares are additional shares that a company gives to its current shareholders for free, based on the number of shares they already own. Bonus shares are a way of rewarding shareholders and increasing their participation in the company. Bonus shares do not change the total value of the company, but they reduce the price per share and increase the number of shares outstanding.
Some possible reasons for issuing bonus shares are:
To capitalize the accumulated reserves and surplus of the company.
To increase the liquidity and affordability of the shares in the market.
To signal the confidence and growth prospects of the company.
To avoid paying cash dividends and conserve cash for future investments.
Bonus shares are issued in a certain ratio, such as 1:1, which means one bonus share for every one share held. To be eligible for bonus shares, a shareholder must own the shares on the record date, which is the cut-off date set by the company to identify the shareholders. The ex-date is the date by which a shareholder must buy the shares to get the bonus shares. It is usually one working day before the record date.
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