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Why do companies offer bonus share?

  1. To reward their investors: To pay gratitude to investor by offering an extra share.
  2. To increase the liquidity of the stock: It increases the no. of outstanding shares increase which result in increase of liquidity of stock and increases the participation of the traders.
  3. To bring the stock at a low price: The stock price readjusts itself after the record date of the bonus share. So, the price of stock dips and comes at a lower price which then becomes attractive to the investors.
  4. Tax saving through Bonus Share: In case of cash dividends, companies have to pay dividend distribution tax resulting in diminished return for investors. In case of bonus shares, no dividend distribution tax is levied.

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