Question

Bonus shares are issued as a free gift to the e{Preference Shareholders.

Hint:

Bonus shares are a reward for the "owners" who take the risk. In a company, the ultimate risk-takers and owners are the Equity Shareholders.

Answer 1

Step 1: Understand bonus shares. Bonus shares are additional shares given to existing shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are issued from a company's accumulated profits or reserves. Step 2: Differentiate between shareholder types. Equity Shareholders are the real owners of the company and bear the risk. They are rewarded with profits, including bonus shares. Preference Shareholders have a preferential right to receive dividends at a fixed rate but are generally not entitled to bonus shares. Step 3: Conclude the recipient of bonus shares. Bonus shares are a way to capitalize profits and are issued to equity shareholders.