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Definition

Also called "bonus issues", these do not involve transfer of cash between the company and its members. They occur when a company feels it desirable to convert part of its reserves (profits from earlier years which have not been paid out as dividends) into new shares. This often arises when the number of shares in issue is small in relation to the total value of the business. This makes them too scarce or highly priced to be easily traded. From a member's (shareholder's) point of view, the effect is to give him a greater number of shares than he already has. As the company itself has not grown any larger or smaller in the process, the percentage of his holding has remained unchanged; his stake therefore consists of more shares, each representing less of the company.

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