What is a Bonus Share?
Additional shares which are distributed to the current shareholders with no extra price are known as Bonus Shares. They are usually given depending on the number of shares owned by a shareholder. These shares are basically built up earnings of the company which it converts into free shares instead of giving in form of dividends. These are also issued to foster retail participation and also increase their equity base.
Also, the new investors are not able to buy the shares if the price of the latter is quite high. However, increase in the number of shares brings the per share price. It is important to know that the combined capital remains same even after the declaration of these shares.
The underlying principle is that the total number of shares goes up constantly i.e. in a smooth ratio of the number of shares held to the number of outstanding shares.