New shares distributed to existing shareholders in conjunction with a capital increase out of retained earnings, thereby enabling them to maintain a proportional share of ownership in the company.
A capital increase out of retained earnings is effected by converting general reserves into share capital. Bonus shares are distributed so that existing shareholders can own a percentage of the new share capital that is equivalent to their original stake in the company, which protects them from the effects of dilution.
Bonus shares are admitted to exchange trading without having to undergo the admission process. The price of existing shares decreases following the issue of the new shares in proportion to the capital increase (see the example given under ’’subscription right’’). However, the total value of the shares owned by existing shareholders does not change.
Shareholders will profit from the issue of new shares if the bonus shares are entitled to a dividend payment in the same amount as the dividend paid on the original shares.
