Q.Shares issued free of cost to the shareholders are known as ______ shares.

The correct option is bonus. Bonus shares are fully paid shares given free of cost to existing equity shareholders by capitalising the company's accumulated profits and reserves.

A prosperous company builds up large free reserves out of retained profits. Instead of paying all of this out as cash dividend, it may convert a part of these reserves into share capital and distribute the resulting shares among existing shareholders in proportion to their present holding — for example, one bonus share for every two held.

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