Bonus shares are the shares offered to the current shareholders for free of cost. That is no additional cost is incurred by the shareholders on purchase of such shares.
These shares are offered by the company when there are extra profits and the company does not intend to utilise them in funds.
Example, suppose company ABC LTD has a share capital of 1000000 divided into 10 per share. That means the company has 100000 shares. Now the company decides to offer 1 bonus share for every share held by the shareholders. Therefore the bonus shares issued will be 100000 for 10 each.

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