What is the capitalisation of the reserves of a company through the issuance of additional shares to existing shareholders called?

The process of capitalising reserves through the issuance of additional shares to existing shareholders is known as a bonus issue. This mechanism allows a company to distribute additional shares without requiring shareholders to pay for them, essentially converting their reserves into issued share capital. This is often a way for companies to reward shareholders when they have accumulated profits but want to retain cash for other operational needs.

A bonus issue signifies to investors that the company is financially healthy and able to issue shares without diminishing the value of existing shares. The bonus shares are generally issued in proportion to the shares that shareholders already own, so existing shareholders' percentage of ownership in the company remains unchanged. In contrast, rights offerings would require shareholders to pay for the additional shares, while a premium issue typically relates to shares issued at a price above their nominal value, and a dividend share issue usually refers to distributing dividends in the form of shares rather than cash.