ACCA LW ^Eng Syllabus E. Capital And The Financing Of Companies - Explain Allotment Of Shares - Notes ^{3 / 4}

Private Companies (with one class of share)

You basically apply to the directors to allot you some shares

Public Companies (and Private companies with more than 1 class of share)

Here director's can't allot shares without members' authority. If they do they then can be fined - but share issue is still valid!

Basically any new shares to be issued must be offered also to current shareholders according to the percentage they own - it results in a rights issue of shares

Rights Issue

This offer to existing shareholders must be made in writing (same form as general meeting notice) and be available for a period of not less than 21 days

A PRIVATE company may exclude these pre-emption rights by special resolution

Bonus Issue

This is an issue of shares for FREE to existing shareholders (according to their percentages)

So the credit goes to Share Capital (at nominal value) and the debit goes to share premium (if there is one)

This debit reduces share premium (or other reserves)

Therefore a bonus issue is often called 'a capitalisation of reserves'

It is also called a 'scrip issue'