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Understanding Additional Share Issuances and Their Impact on Companies

Companies can issue additional shares post-formation for various reasons, such as raising capital. These shares may be offered as stock options to employees, incentivizing them to enhance company performance and stock value. Bonus shares can also be distributed free to existing shareholders, utilizing reserves or retained earnings. Stock dividends involve distributing additional shares instead of cash, allowing companies to maintain liquidity. Additionally, Employee Stock Ownership Programs (ESOPs) offer shares in lieu of bonuses, fostering employee ownership while differentiating from traditional bonus shares.

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Understanding Additional Share Issuances and Their Impact on Companies

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  1. Additional share issuances Shares can be issues subsequent to the original formation of the company for several reasons. The firm may wish to raise additional capital. These shares are then made available to employees in the form of stock options to encourage employees to work harder in order to raise the market price of the stock.

  2. Bonus shares • These shares are issued to existing share holders free of charge. A company can issue bonus shares by : • Utilizing the balance in the retained earnings • Utilizing the balance in a revenue reserve • Utilizing a capital reserve The purpose of issuing bonus shares may be to convert reserves from being returnable to non-returnable.

  3. Stock Dividends Stock dividends are a distribution of additional shares of any class of the distributing company’s shares to shareholders without additional cash payment. This dividend must be paid out of realized profits only. If shares are issued in payment of a dividend, the stated value of the dividend as an amount in money must be added to the stated capital account. Stock dividends allow the company to retain cash and still give shareholders a dividend that will entitle them to more cash dividends in the future.

  4. Employee Stock Ownership Programmes ( ESOP )/ Profit Sharing schemes In some companies shares are issued in lieu of bonus to employees. The issue of shares in lieu of bonus is not the same as bonus shares. Bonus shares are issued to existing shareholders while shares issued in lieu of bonus are shares giving to employees of a company.

  5. THE END!!! Done by : Marie Christo Melissa Douglas DaniellaBorde AlliaRamcharan

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