Shareholder Rights - What Is a Bonus Issue?

A bonus issue is a method in which a company issues shares free of charge to existing shareholders without receiving any funds, mainly used to increase its paid-in capital.
In this process, existing shareholders' ownership ratios stay the same while the number of shares increases.
The increased number of shares leads to an increase in the company's paid-in capital, which can raise the company's creditworthiness and have a positive effect in the stock market.

Key steps of a bonus issue:
1. Par value adjustment: After a bonus issue, the company adjusts the par value to increase the number of shares.
For example, if a stock with a par value of 10,000 won undergoes a 1:1 bonus issue, each existing shareholder receives 1 additional share per share held. In return, the par value is adjusted to half, 5,000 won.
2. Conversion of surplus into capital: The company carries out the bonus issue by converting surplus into paid-in capital.
Surplus is divided into retained earnings (profits earned from business activities) and capital surplus (share premium).
Capital surplus arises from the difference between par value and issue price, and it can be converted into paid-in capital.
3. Share premium: Share premium arises when shares are issued at a price higher than par value, in the amount of the difference.
For example, if the par value is 1,000 won and shares are issued at 2,000 won, a share premium of 1,000 won is created.
This premium accumulates as capital surplus and can be converted into paid-in capital through a bonus issue.

Purposes of a bonus issue:
・Increase in paid-in capital:
The company can improve its financial position by increasing its paid-in capital.
This acts as a positive signal that raises the company's creditworthiness in the eyes of outside investors.
・Increase in the number of shares: The number of shares increases after a bonus issue, but existing shareholders' ownership ratios do not change, so existing shareholders suffer no direct loss.