Explanation

Shares issued free of charge to existing shareholders based on their previous holdings is called a bonus issue. Also known as scrip issue or capitalization issue, this is a way for companies to reward shareholders without paying cash dividends.

In a bonus issue, the company converts its reserves (accumulated profits or share premium) into share capital. For example, in a 1-for-2 bonus issue, a shareholder with 100 shares would receive 50 additional shares free of charge.

Bonus issues increase the number of shares but do not change the total value of a shareholder’s investment. If shares were worth ₦10 each before a 1-for-1 bonus issue, they would be worth ₦5 each afterward, but the shareholder would own twice as many.

An accrued issue is not a term used in share issues. Floating relates to new share issues to the public. Premium refers to shares issued above their face value. None of these describe free shares given to existing holders.