Legal Definitions - bonus stock

Bonus stock is a type of stock that is given to investors for free as an incentive to buy other securities. It is also known as bonus shares. However, it is considered a type of watered stock, which means that it may not have any real value.

Suppose a company wants to encourage investors to buy its preferred stock. To do this, it may offer bonus stock to those who purchase a certain number of preferred shares. For example, an investor who buys 100 preferred shares may receive 10 bonus shares for free. However, the bonus shares may not have any real value and may not entitle the investor to any dividends or voting rights.

This example illustrates how bonus stock is used as an enticement to buy other securities. It also shows that bonus shares may not have any real value and may not provide any additional benefits to the investor.