In the financial landscape of the UK, the term ‘bonus issue of shares’ holds significance for companies and shareholders alike. A bonus issue of shares allows companies to distribute additional shares to their current shareholders without any extra cost. Rather than offering dividends in the form of cash, a company can reward its shareholders with extra shares. This detailed guide will discuss the steps UK companies should follow if they choose to execute a bonus issue of shares.
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1. Assessing the Underlying Reason
Before even considering a bonus issue of shares, the company’s board of directors must first discern the primary motivation behind such a decision. Some common reasons include:
- Adjusting the share price to a more accessible level.
- Projecting financial robustness to the market.
- Capitalising a part of the company’s reserves.
2. Review the Articles of Association
The Articles of Association play a pivotal role in governing a company’s internal operations. Before the bonus issue of shares can occur, the company must ensure that the Articles of Association contain provisions permitting such an issue. If such a clause is absent, the Articles need modification, which demands passing a special resolution by the shareholders.
3. Convene a Board Meeting
To discuss the specifics, the board of directors must call a board meeting. In this essential assembly, the board will:
- Determine the available free reserves suitable for the bonus issue of shares.
- Establish the ratio for the issuance (for instance, 1:3 means one bonus share for every three shares held).
- Decide on a date to identify the eligible shareholders for the bonus issue.
- Arrange a subsequent general meeting to gain the shareholders’ consent.
4. Dissemination of the General Meeting Notice
Once the board meeting concludes, the next step is to notify all shareholders about the impending general meeting. This notification elucidates the proposal of the bonus issue of shares and seeks shareholders’ participation and vote on the matter.
5. Conducting the General Meeting and Resolution Passing
At the general meeting, shareholders will ponder the proposal in depth. To approve the bonus issue of shares, a minimum of three-quarters of the votes from members entitled to vote is necessary. With the resolution’s approval, the company can forge ahead with the bonus issue of shares.
6. Modifying Share Capital Details in Financial Documents
The issuance leads to changes in the company’s financial balance:
- Reserves such as retained earnings or securities premium diminish by the amount allocated for the bonus issue.
- Conversely, the company’s issued share capital undergoes an increase by a similar amount.
Although the shareholders’ total equity remains constant, the allocation between reserves and share capital undergoes modification.
7. The Allotment of the Bonus Issue of Shares
Post the passing of the resolution and the subsequent procedural milestones, the company embarks on the allotment of shares as per the predetermined ratio. These shares then make their way to the Demat accounts of shareholders or, in the case of tangible holdings, share certificates are dispatched.
8. Adherence to Regulatory Filings
Once allotment concludes, the company must update regulatory bodies about the changes. Necessary forms should be submitted to the Companies House in the UK, intimating them about the share capital alterations. Furthermore, if the company enjoys a listing on a stock exchange, it’s imperative to notify the exchange about the bonus issue to maintain transparency.
9. Update of Statutory Registers
Post bonus issue, the company must ensure that statutory registers, especially the Register of Members, reflect the revised shareholding pattern.
10. Informing the Shareholders
After the execution of the bonus issue of shares, companies should communicate the same to all shareholders, affirming the number of bonus shares allotted, which not only clarifies any ambiguities but also fosters trust.
Executing a bonus issue of shares in the UK demands meticulous planning, strict adherence to company policies, and thorough compliance with UK regulations. It’s a procedure that not only rewards shareholders but also has implications on the company’s financial standing and market perception. By understanding and appropriately implementing each step, companies can ensure a smooth and compliant bonus issue of shares.
