A bonus issue (also called a scrip issue or capitalisation issue) is when a company converts part of its retained earnings, capital reserves, or share premium account into equity capital by distributing free shares to existing shareholders.
Like a rights issue, bonus shares are distributed in proportion to current holdings — a "1-for-2 bonus" means shareholders receive one free share for every two they already hold. The total number of shares increases, but the shareholder's percentage ownership does not change.
After a bonus issue, the share price is theoretically adjusted downward to reflect the increased share count, so the total market capitalisation stays constant in the short term. For example, if you hold 100 shares at LKR 30 each and receive a 1-for-1 bonus, you now hold 200 shares at approximately LKR 15 each.
Companies use bonus issues to signal confidence in future earnings and to improve share liquidity by making the stock more affordable (lower price per share). They are generally viewed positively by the market as a sign of financial health.