What are the disadvantages of issuing bonus shares?

Bonus Share means decrease market value per share.

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Bonus shares are issued by companies in lieu of paying a cash dividend.

Advantages.

1. The investor doesn't need to pay tax when receiving the bonus shares

2.It is specifically beneficial for investors  who believe in the long story of the company.

3.issuing additional shares and using cash for the business growth of the company increases the investors belief in operations of the company.

3. If the company starts paying the cash dividend in the future the investors receives more because he holds a number of shares in the company.

Issuing bonus shares will result to the increase number of outstanding share capital which consequently will dilute the company's market price per share capital.

Increase in the number of shares reduces the price per share. It will encourage speculative dealings in the company’s shares. Furthermore the rate of dividend in future will decline and may confuse investors.