BANKING AFFAIRS

Detailed explanation-1: -Definition: Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are company’s accumulated earnings which are not given out in the form of dividends, but are converted into free shares.

Detailed explanation-2: -A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders.

Detailed explanation-3: -What are Bonus Shares? The bonus shares meaning states that they are the additional set of shares allotted by the company to the existing shareholders as a ‘bonus. ‘ These additional shares are allotted because the company can’t pay dividends to shareholders despite making profits.

Detailed explanation-4: -For instance, if a company notifies 1:2 bonus issue, the shareholders are entitled to receive two additional shares for one existing share they hold.

Detailed explanation-5: -Bonus shares are issued by a company when it is not able to pay a dividend to its shareholders due to shortage of funds in spite of earning good profits for that quarter. In such a situation, the company issues bonus shares to its existing shareholders instead of paying dividend.