Explain the following term / concept : Bonus shares

Answer: Bonus shares are fully paid-up shares issued free of cost by a company to its existing equity shareholders in proportion to their existing holding, by capitalising its free reserves, securities premium or capital redemption reserve (Section 63 of the Companies Act, 2013).

• No cash is received by the company; accumulated profits are converted into share capital.
• They must be authorised by the Articles and recommended by the Board and approved in the general meeting.
• They cannot be issued in lieu of dividend and cannot be issued out of revaluation reserve.
• Once announced, the decision cannot be withdrawn.