In the financial realm, a bonus issue of shares signifies the issuance of additional shares to existing shareholders without any extra cost. It’s a strategy adopted by companies to reward shareholders by capitalizing on their free reserves. For UK companies, there’s a specific procedure to follow to ensure the bonus issue of shares is transparent and complies with the requisite regulatory framework. Let’s delve into the general procedures involved when a UK company opts for a bonus issue of shares.
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1. Assessment and Justification
Prior to the initiation of the bonus issue, the company must have a concrete rationale:
- To adjust the stock’s market price to a more favourable range.
- To manifest confidence in the company’s robust financial health.
- To convert a part of the company’s reserves into issued capital.
2. Review the Articles of Association
It’s imperative for a company to confirm if its Articles of Association have provisions allowing a bonus issue of shares. If not, an amendment is essential, necessitating the passing of a special resolution by the shareholders.
3. Convening a Board Meeting
This is the foundational step where the company’s directors:
- Determine the available free reserves to support the bonus issue of shares.
- Decide on the ratio for the bonus issue, e.g., 1:3 would indicate one bonus share for every three shares held.
- Set a specific date for the shareholders’ eligibility for the bonus issue.
- Propose a general meeting for shareholder approval for the bonus issue of shares.
4. Dispatching the General Meeting Notice
Subsequent to the board meeting, shareholders are sent a notice of the upcoming general meeting. This notice provides detailed insights into the bonus issue of shares and encourages shareholders to cast their votes on this significant matter.
5. Holding the General Meeting
At this juncture, shareholders discuss and cast their votes on the proposed bonus issue of shares. A successful passage requires the affirmative votes of at least three-quarters of the eligible voting members.
6. Adjusting the Share Capital Details
Post the bonus issue of shares, modifications are seen in the company’s balance sheet:
- A reduction in the company’s reserves, equivalent to the bonus issue’s capitalized amount.
- A corresponding increase in the company’s issued share capital.
It’s noteworthy that while the composition changes, the overall equity remains consistent.
7. Allotting the Bonus Shares
After acquiring the necessary approvals and fulfilling the procedural obligations, the company undertakes the allocation of the bonus shares based on the previously decided ratio. Shareholders receive these shares either through credit to their Demat accounts or via dispatched share certificates, depending on their mode of holding.
8. Regulatory Compliance
Following the allocation, it’s mandatory for the company to file the relevant forms with the Companies House in the UK, informing them about the modifications in the share capital. Additionally, listed companies have an obligation to notify the stock exchange about the bonus issue of shares, ensuring transparency for the market and investors.
9. Updating Statutory Registers
The company must diligently update its statutory registers to reflect the newly altered shareholding pattern post the bonus issue. Primarily, the Register of Members undergoes significant changes.
10. Communicating with Shareholders
As a gesture of clarity and to nurture trust, companies should proactively communicate with their shareholders post the allocation of bonus shares. A formal communication, like a letter or an email, detailing the number of bonus shares allotted, fosters goodwill and transparency.
Opting for a bonus issue of shares in the UK requires meticulous adherence to a set of procedures that are grounded in the country’s corporate governance principles. While it offers a non-cash method to reward shareholders, the intricate process demands precision and an in-depth understanding of the company’s Articles of Association and the prevailing UK corporate laws. Companies contemplating this path should be well-equipped to navigate its complexities and ensure that every step aligns with the overarching regulatory requirements.
