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The Procedure for a Bonus Issue of Shares in UK Companies: An Overview

When a UK company decides to reward its shareholders without distributing cash, one option is the ‘bonus issue of shares’. Instead of paying dividends, the company issues extra shares at no direct cost to existing shareholders. This can be perceived as a sign of the company’s financial health, as it capitalises on its reserves. Below is a detailed guide outlining the general procedure that UK companies must follow for a bonus issue of shares.

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1. Justifying the Bonus Issue of Shares

Before embarking on the bonus issue process, the company needs to identify its underlying motivations. Such reasons might include:

  • Aligning the share price to a preferable range.
  • Demonstrating the company’s robust financial standing.
  • Capitalising on accumulated company reserves.

2. Verification of the Articles of Association

The company’s Articles of Association must permit the bonus issue of shares. If the current Articles do not provide for such an issue, the company must alter them. To do this, shareholders need to pass a special resolution, usually requiring a 75% majority.

3. Convening a Board Meeting

The company’s directors must arrange a board meeting to:

  • Check the available free reserves for the bonus issue of shares.
  • Decide the ratio for issuing these shares (for instance, 1:3 would mean one bonus share for every three existing shares).
  • Determine a date for finalizing the shareholders entitled to receive the bonus shares.
  • Schedule a general meeting to gain shareholder approval for the proposed bonus issue of shares.

4. Issuing a Notice for the General Meeting

Following the board meeting, shareholders should receive a notice about the upcoming general meeting. This notice, detailing the agenda, will inform shareholders of the proposal to undertake a bonus issue of shares, asking for their vote on the matter.

5. Hosting the General Meeting and Passing the Resolution

Shareholders will discuss the proposal in the general meeting. For the resolution to pass regarding the bonus issue of shares, it typically requires a three-quarters majority of the votes cast by members with voting rights. Once shareholders approve the proposal, the company can move forward with the bonus issue of shares.

6. Amending Share Capital Details on the Balance Sheet

Upon issuing the bonus shares:

  • The reserves (such as retained earnings or the securities premium) reduce by the amount capitalised for the bonus issue.
  • The company’s issued share capital correspondingly increases.

Although the total shareholders’ equity remains unchanged, there is a shift between reserves and share capital in its composition.

7. Allotting the Bonus Shares

After successfully passing the resolution and meeting all procedural requirements, the company allocates the bonus shares in the pre-established ratio. These shares then get credited to the shareholders’ Demat accounts or, in the case of physical holdings, the company dispatches share certificates.

8. Compliance with Regulatory Documentation

Once the bonus shares are allocated, the company needs to update necessary forms with the Companies House in the UK, reporting the alteration in share capital. If the company has listings on a stock exchange, it’s also essential to inform the exchange about the bonus issue of shares, ensuring market transparency.

9. Updating Statutory Registers

Post the bonus issue of shares, the company has an obligation to update its statutory registers, particularly the Register of Members. This ensures that the new shareholding pattern, post the bonus issue, is accurately reflected.

10. Informing Shareholders Post Allotment

After the allocation of bonus shares, companies typically communicate the details to the shareholders. This can be through a letter or email, confirming the number of bonus shares allotted to them. Such communication is vital in maintaining trust and fostering goodwill amongst shareholders.

Undertaking a bonus issue of shares in the UK is a regulated affair, designed to protect the interests of all associated stakeholders. Though it represents a non-cash reward mechanism for shareholders, the procedure demands rigorous adherence to both the company’s Articles of Association and UK legislation. Companies contemplating this strategy should be acutely aware of its regulatory and financial implications, ensuring each step is executed with precision and clarity.

Cary Grant
Cary Grant
Cary Grant, the enigmatic wordsmith hailing from the UK, is a literary maestro known for unraveling the intricacies of life's myriad questions. With a flair for delving into countless niches, Grant captivates readers with his insightful perspectives on issues that resonate with millions. His prose, a symphony of wit and wisdom, transcends boundaries, offering a unique lens into the diverse tapestry of human curiosity. Whether exploring the complexities of culture, unraveling philosophical conundrums, or addressing the everyday mysteries that perplex us all, Cary Grant's literary prowess transforms the ordinary into extraordinary, making him a beacon of intellectual exploration.


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