Definition: Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are company's accumulated earnings which are not given out in the form of dividends, but are converted into free shares.

How does a bonus share work?

11.3 – Bonus Issue

The bonus shares are issued out of the reserves of the company. These are free shares that the shareholders receive against shares that they currently hold. ... If the ratio is 2:1 ratio, the existing shareholders get 2 additional shares for every 1 share they hold at no additional cost.

How is bonus share calculated?

Bonus shares are issued according to each shareholder's stake in the company. ... For example, a three-for-two bonus issue entitles each shareholder three shares for every two they hold before the issue. A shareholder with 1,000 shares receives 1,500 bonus shares (1000 x 3 / 2 = 1500).