A listed company can issue more shares in the secondary market through different routes such as rights issue or bonus issue.
Bonus issue refers to the distribution of company’s shares to existing shareholders without charging any cost. Companies may decide to offer bonus shares in case they want shareholders to enjoy a share in their profits.
Impact of bonus shares
Shares in a bonus issue are offered only to existing shareholders as a percentage of their existing shareholding. After receiving the bonus issue, the number of outstanding shares in the company increases but the share capital remains the same. The EPS of the company is also diluted on account of increase in the number of outstanding shares. Shareholders can also receive dividends on the bonus issue in the future.