bonus issue

  

Definition

Fully paid-up new common stock (ordinary shares) issued free to existing stockholders (shareholders) in proportion to their current stock/shareholdings. A bookkeeping transaction (because no cash changes hands), it capitalizes a part of reserves (retained earnings) to bring (1) share capital more in line with the assets employed; and (2) a high share price back to a more manageable amount, thus enhancing its marketability. Although the number of shares held by each shareholder increases, the value of the total shareholding remains the same as before the bonus issue.
Also called scrip issue, bonus shares, or capitalization issue. See also rights issue.

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