A company issue shares in lieu for cash or sometimes against transfer of physical or intellectual property to the company's hands.

But bonus shares are issued to the existing shareholders by converting free reserves or share premium account to equity capital without taking any consideration from investors.

Bonus shares do not directly affect a company's performance.

Bonus issue has following major effects.

1. Share capital gets increased according to the bonus issue ratio.
2. Liquidity in the stock increases.
3. Effective Earnings per share, Book Value and other per share values stand reduced.
4. Markets take the action usually as a favorable act.
5. Market price gets adjusted on issue of bonus shares.
6. Accumulated profits get reduced.


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