A bonus issue is usually based upon the number of shares that shareholders already own.
In other words, it can convert the right of the shareholders because each individual will hold the same proportion of the outstanding shares as before.
Because a bonus issue does not represent an economic event – no wealth changes hands.
The only practical difference is that a bonus issue creates a change in the structure of the company's shareholders' equity (in accounting).
[4] A bonus share issue is most commonly not taxed as a dividend, even if it is charged to retained earnings.