Bonus issue

Also known as a scrip issue (www.practicallaw.com/A38368) or capitalisation issue (www.practicallaw.com/5-107-6176). An issue of new shares to existing shareholders in the same proportions as their existing holdings. Although the shareholders do not pay for the new shares they are not receiving something for nothing (as the term “bonus issue” may imply) because the value of their existing holding will go down in proportion to the amount of new shares issued, so that the total value of their holding does not change significantly. It is simply a bookkeeping transaction whereby a company turns part of its accumulated reserves into new shares, and reduces the value at which each share trades. If a company’s shares have a very high market quotation, the company may arrange a bonus issue in order to reduce the value at which shares trade and so theoretically increase the marketability of the shares.

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