Glossary · Corporate Law
Bonus Share
Free additional shares issued to existing shareholders in proportion to their existing holdings, capitalised from the company's reserves.
Bonus shares are issued under Section 63 of the Companies Act, 2013, capitalising the company's free reserves or securities premium account. They are non-cash dividends and do not result in any cash inflow or outflow. Bonus shares increase the number of outstanding shares but the company's market capitalisation remains unchanged. They cannot be issued for less than 2 years from the date of incorporation or for outstanding partly paid shares.
Examples
A company with 10 lakh shares declares a 1:1 bonus issue, giving each shareholder one free share for every share held, taking the total to 20 lakh.