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About Business Basics
Business Basics are AI-generated explanations prepared with access to the complete collection, human-reviewed prior to publication. Short and simple, covering business fundamentals.
Topics Covered
- Definition of scrip issue
- Regional terminology differences
- Mechanics of scrip issue
- Rationale and benefits of scrip issues
- Accounting treatment of scrip issues
- Impact on share price and value
- Advantages and disadvantages
Talk Citation
(2025, September 30). Scrip issue [Video file]. In The Business & Management Collection, Henry Stewart Talks. Retrieved September 30, 2025, from https://doi.org/10.69645/RLUA6479.Export Citation (RIS)
Publication History
- Published on September 30, 2025
Transcript
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0:00
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