An issue of bonus shares is an issue of new shares by a company to the existing shareholders of the company. As the bonus shares are paid up using the company’s existing profits or reserves no payment is required from the shareholders.
The company’s directors must have the authority to allot the bonus shares and such authority is generally stated in the articles of association of the company, therefore, before a company can carry out a bonus issue the articles of association must be checked to ensure that the directors have authority to issue bonus shares by capitalising the relevant profits or reserves. Article 36 of the Model Articles for Private Companies Limited by Shares and Article 78 of the Model Articles for Public Companies provides for shareholders approval by ordinary resolution before the directors can allot bonus shares. Consequently, shareholders must pass an ordinary resolution to grant the directors authority to allot shares under the bonus issue. Please note - the articles of association could state that a special resolution is required instead of an ordinary resolution or, that shareholder approval is not required at all, for this reason is important to always check the articles of association of the company before bonus shares are allotted.
Where the company’s articles do not allow the directors to issue bonus shares by capitalising the relevant profits or reserves, the articles must be amended by means of a special resolution.
If shareholder approval is not sought for a bonus issue when required by the articles, then the bonus issue will be invalid.
This Ordinary Resolution to Issue Bonus Shares can be used by both private and public companies to approve the capitalisation of profits or reserves and issue bonus shares. It authorises the directors to capitalise a specified sum standing to the credit of the relevant reserve and to apply such amount in paying up in full a specified number of bonus shares.
For both private and public companies the Ordinary Resolution to Issue Bonus Shares must be passed at a general meeting, although private companies can also pass the Ordinary Resolution to Issue Bonus Shares by means of a written resolution.
A company can carry out a bonus issue provided it has sufficient profits or reserves to create the new bonus shares.
Please note:
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Bonus shares must not be issued at a discount to their nominal value.
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There is no prescribed form for bonus shares, the company can choose whether the bonus shares are to be credited as partly or fully paid, or of the same class as the shares entitled to the bonus issue or of a different class etc.
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Statutory pre-emption rights contained do not apply to the allotment of bonus shares and therefore they do not need to be disapplied.
This Ordinary Resolution to Issue Bonus Shares is in Microsoft Word format, written in plain English easy to use and edit.
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