Scrip issue

A scrip issue is a method companies use to reward existing shareholders by issuing additional shares free of charge, instead of cash dividends. When a company has substantial profits, it may convert part of its reserves into share capital, increasing the number of outstanding shares. In the UK, this is known as both a “scrip issue” and a “bonus issue,” while in the US, it is called a “stock dividend.” This process does not change a shareholder's overall percentage holding but increases the number of shares they own. When a scrip issue takes place, shares are allocated in a predetermined ratio, such as one new share for every five shares already held. The main rationale is often to signal strength; by capitalizing reserves, a company demonstrates confidence in its long-term prospects. This approach allows the business to conserve cash, which can be particularly valuable during economic uncertainty or when reinvestment opportunities arise. Furthermore, a scrip issue can bring the market price of shares to a more accessible level, especially if the original price was considered high, making them more appealing to a broader base of investors. From an accounting perspective, a scrip issue involves transferring funds from a company’s reserves— commonly the profit and loss account or share premium account— into its share capital account. This transaction does not increase the total equity but redistributes it between reserves and issued capital. Shareholders do not have to take any action or provide further payment; their share certificates or electronic holdings are