A ₹500 note for five ₹100 notes
Hand a shopkeeper a ₹500 note and ask for change. You walk out with five notes instead of one. You have more pieces of paper, and exactly the same money.
A bonus issue and a stock split do this to shares. The company, its business, its cash and its debts are untouched. The number of pieces its ownership is cut into goes up, and the price of each piece comes down in proportion. Your share of the whole — Bharat Foods' 0.0001% from 01.01.01 — does not move.
Two ways to double the count
A stock split changes the face value. Bharat Foods' shares carry a ₹10 face value (01.01.03). Split each ₹10 share into two ₹5 shares and one crore shares become two crore. Share capital stays ₹10 crore — there are simply more, smaller units of it. Under the Companies Act this is a sub-division, and it needs the company's articles to allow it and shareholders to approve it.
A bonus issue keeps the face value and changes the books instead. The company turns part of its reserves into share capital and hands out new, fully paid shares for free. A 1:1 bonus gives one new share for every one held. Share capital rises from ₹10 crore to ₹20 crore, and the reserves fall by the same ₹10 crore — money moved from one line of the company's accounts to another.
The law limits where a bonus can come from: free reserves, the securities premium account, or the capital redemption reserve — never a reserve created by revaluing assets, which is a paper gain with no cash behind it. And bonus shares cannot be issued in place of a dividend.
The same company, three ways
A hypothetical: Bharat Foods before, after a 1:1 bonus, and after splitting ₹10 shares into ₹5 ones. Tap each and look at which lines move.
The ₹28 crore securities premium is the premium from Bharat Foods' 2019 IPO: 20 lakh new shares issued ₹140 above their face value (01.02.02), assuming none of it has been used since. It is here only to show that a bonus needs a real reserve to come from.
After a 1:1 bonus, which of these changes for you?
A ceiling you have already met
01.01.03 set Bharat Foods' authorised capital at 2 crore shares — a ceiling it had never reached, with one crore issued. A 1:1 bonus would take it to exactly two crore. That is not a coincidence worth celebrating: it would leave no room at all for any further issue until shareholders voted to raise the ceiling.
So a larger bonus — two new shares for every one held, say — could not simply be announced. The authorised capital would have to be increased first. A bonus is an accounting event with legal steps attached, not a button the board presses.
None of this has happened. Bharat Foods has issued no bonus and done no split since its 2019 listing; everything above is a hypothetical, which is exactly how 01.01.04 used a split too.
- Your shares
- 10 → 20
- Price per share, all else equal
- ₹500 → about ₹250
- Your holding is worth
- ₹5,000 → about ₹5,000
- Your share of Bharat Foods
- 0.0001% → 0.0001%
Why a company bothers — and what to adjust
If nothing changes, why do it? A lower price per share makes round numbers of shares easier for small investors to buy, and more shares in issue can mean more trading. A bonus can also be read as the board saying its reserves are comfortable. Those are reasons, not value: the business is the same size the morning after.
What does change is every number quoted per share. Earnings per share halve. A ₹4 dividend per share before a 1:1 bonus is the same money as ₹2 per share after it. And a price chart that shows ₹500 before and ₹250 after is showing an event, not a crash — which is why charts adjust past prices, the subject of 01.07.05.
Two instincts to distrust, then. "I got free shares, so I am richer." You got more pieces of the same thing. "The price halved, so it is cheap now." It is exactly as expensive as it was; 01.01.04 is the whole reason.
A share trades at ₹900 just before a 1:2 bonus — one new share for every two held. Drag to the price you would expect straight after, all else equal.
A bonus or a split has a record date too, and under T+1 settlement its ex-date is normally that same day — so, as with a dividend, you need to have bought at least one trading day earlier to be on the list. On the ex-date the exchange adjusts the reference price, and the new shares are credited to your demat account a few days after the record date. Until they arrive, the drop in price can look like a loss. It is not; the other half is on its way.
A dividend moves cash out of the company. A bonus or a split moves nothing at all. The next corporate action does move something — it asks you for money, and changes what your stake is worth if you say no.