Glossary term
Bonus Issue
A bonus issue is a distribution of additional shares to existing shareholders, usually in proportion to shares already owned.
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What Is a Bonus Issue?
A bonus issue is a corporate action in which a company gives existing shareholders additional shares, usually in proportion to the shares they already own. It is also called a bonus share issue, capitalization issue, or scrip issue in some markets.
A bonus issue resembles a stock dividend or stock split in economic effect. Shareholders receive more shares, but the company's total value does not automatically rise because more shares are now outstanding.
Key Takeaways
- A bonus issue gives existing shareholders additional shares.
- The distribution is usually proportional to current ownership.
- The share price typically adjusts because more shares are outstanding.
- A bonus issue does not create cash for shareholders.
- The term is more common outside the United States, where similar actions may be described as stock dividends or stock splits.
How a Bonus Issue Works
If a company declares a 1-for-2 bonus issue, a shareholder may receive one additional share for every two shares owned. A person with 200 shares would receive 100 additional shares, for a total of 300 shares.
The shareholder owns more shares after the transaction, but the ownership percentage generally stays the same if all shareholders receive shares proportionally. The market price per share usually adjusts to reflect the larger share count.
Bonus Issue Versus Related Actions
Action | What shareholder receives | Cash involved? |
|---|---|---|
Bonus issue | Additional shares | No cash distribution |
Stock dividend | Additional shares | No cash distribution |
Stock split | More shares at lower per-share price | No cash distribution |
Cash dividend | Cash payment | Yes |
Why It Matters
A bonus issue can make shares appear more affordable by lowering the per-share price after adjustment. It may also signal that management wants to reward shareholders without paying cash.
Investors should focus on economic ownership, not just the number of shares. More shares do not necessarily mean more wealth if the per-share price adjusts in proportion.
Limits and Misunderstandings
A bonus issue is not the same as receiving a cash bonus. It is a share distribution. The value depends on the market value of the company and the adjusted share price.
Tax treatment can vary by jurisdiction and by the details of the corporate action. Investors should not assume a bonus issue is tax-free or taxable without checking the relevant rules.
The Bottom Line
A bonus issue gives shareholders additional shares in proportion to existing ownership. It can change the share count and per-share price, but it does not by itself increase the company's total value.