What is a bonus or scrip issue?

A bonus or scrip issue refers specifically to the practice of distributing new shares to existing shareholders, usually at no additional cost, in proportion to their current holdings. This means that shareholders receive extra shares based on the number of shares they already own, effectively augmenting their total investment without requiring them to make any new cash investments. This method is typically used by companies to reward shareholders and increase the company's equity base without depleting cash reserves.

The nature of a bonus or scrip issue emphasizes the idea that it serves as a way to capitalize on retained earnings rather than distributing cash dividends. It’s important to note that while shareholders receive additional shares, this does not change the overall value of their investment, as the overall market capitalization of the company remains the same. Thus, the issuance of new shares is pro-rata, meaning everyone gets new shares in relation to their existing shares, maintaining their proportional ownership in the company.

This process can also have implications for the market perception of the company and can impact the share price, but fundamentally, it’s a corporate action that dilutes the share price while keeping the overall ownership structure intact. Therefore, the correct option accurately captures the essence of a bonus or scrip issue.