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However, issuing free shares takes more money from the cash reserve than issuing dividends. Since the issuance of free shares does not generate cash for the company, it could lead to lower dividends per share in the future, which shareholders may not welcome up. In addition, shareholders who sell free shares to meet liquidity needs reduce the company`s percentage of shareholders and give them less control over how the company is managed. Bonus fees are awarded to shareholders when companies run out of cash and shareholders expect regular income. Shareholders can sell the free shares and meet their liquidity needs. Free shares may also be issued to restructure the Company`s reserves. The issuance of free shares does not include cash flow. It increases the company`s share capital, but not the net assets. Definition: Free shares are additional shares given to current shareholders at no additional cost, based on the number of shares a shareholder owns. These are the accumulated profits of the company, which are not distributed in the form of dividends, but converted into free shares.

Description: The basic principle of free shares is that the total number of shares increases with a constant ratio between the number of shares held and the number of shares outstanding. For example, if investor A owns 200 shares of a company and a company declares a bonus of 4:1, i.e. for each share, he receives 4 shares for free. This represents a total of 800 free shares and its total holdings will increase to 1000 shares. Companies issue free shares to encourage retailer engagement and increase their equity base. When a company`s price per share is high, it becomes difficult for new investors to buy shares of that particular company. Increasing the number of shares reduces the price per share. However, the total capital remains the same even if free shares are declared. See also: Share splits, Stocks, Shares What are free shares? Watch the video. However, there may be capital gains or profit effects on the subsequent sale of these shares. In general, the base cost of free shares is usually zero, but if the bonus issue is taxable as a dividend, the cost base is usually the amount of the dividend taxed plus partially paid free share calls.

The date of acquisition is the date of issue. Whenever a company announces a bonus issue, it also announces an accounting closing date on which the company will ideally temporarily close new share transfers. When a share is split, there is no increase or decrease in the company`s cash reserves. In contrast, when a company issues free shares, the shares are paid for from cash reserves and the reserves are depleted. Share splits and free shares have many similarities and differences. When a company declares a stock split, the number of shares increases, but the value of the investment remains the same. Companies typically explain a stock split as a method of injecting additional cash into stocks, increasing the number of shares traded, and making shares more affordable for retail investors. Does a bonus issue constitute an award of shares in consideration within the meaning of sections 93 and 593 of the Companies Act 2006? Article 593(1) of the Companies Act 2006 (CA 2006) provides that a public company may not allocate shares other than in cash unless: • the consideration for the award has been independently valued • the expert report has been submitted to the company within six months immediately preceding the allocation of the shares; and • a copy of the report has been sent to the proposed successful tenderer. For these purposes, the use of an amount credited to one of the reserve accounts or profit and loss account of a company in the payment of shares allocated to the members of the company or the premium on the shares so allocated shall not be considered as consideration for the allocation. Since a bonus issue involves a company capitalising its reserves and/or profits by depositing unissued shares, Anti-dilution incentive provisions – Article – Non-leveraged investments The following is added to new Article 14: 14.

Protection against dilution 14.1 In this section 14, unless the context otherwise requires, the following expressions have the following meanings: New securities are all shares or other securities: issued by the Company after the date of adoption of these Articles or entitled to subscribe for shares.