Bonus shares are additional shares issued by a company to its existing shareholders without any extra payment, by capitalizing its accumulated reserves and surplus. The issue of bonus shares does not bring fresh funds into the company but converts undistributed profits into share capital. Companies issue bonus shares under specific circumstances based on financial strength, regulatory compliance, and strategic considerations. One of the main circumstances for issuing bonus shares is the presence of sufficient accumulated profits or reserves. When a company has large retained earnings or free reserves that are not immediately required for business expansion or operational needs, it may capitalize these reserves by issuing bonus shares. This helps in converting a part of reserves into permanent share capital while rewarding shareholders. Another circumstance is when a company wants to maintain an optimal capital structure. Excess reserves may create an imbalance between share capital and reserves. By issuing bonus shares, the company increases its paid-up share capital and reduces reserves, thereby improving the capital structure and presenting a more stable financial position in its balance sheet. Bonus shares are also