Capitalisation of Bonus Issue of Shares

Companies in Northern Ireland issue bonus shares for various reasons, and such issuances can serve several purposes. Here are some common reasons why companies issue bonus shares:

• Rewarding Shareholders: Bonus issues are a way for companies to reward their existing shareholders. By providing additional shares free of charge, the company acknowledges the shareholders' loyalty and participation.

• Improving Liquidity: Bonus shares can enhance the liquidity of a company's shares in the market. With more shares available for trading, it can attract more investors and increase the overall trading volume.

• Boosting Shareholder Confidence: Issuing bonus shares can signal to the market and shareholders that the company is in good financial health. It's often seen as a positive indicator and can boost confidence in the company.

• Retaining Earnings: Bonus shares are often issued by capitalizing a company's reserves or retained earnings. This allows the company to convert its accumulated profits into share capital, which can be useful for future expansion or investment.

• Corporate Mergers: Companies undergoing restructuring or mergers may issue bonus shares as part of the reorganization process. This can be a way to realign the shareholding structure.

Shareholders receiving bonus shares may encounter specific tax implications, which can vary depending on their individual circumstances and the nature of the bonus shares.

For individual shareholders, bonus shares are generally not subject to income tax when issued. Shareholders receive the shares without any immediate tax liability, as they haven't received cash or other assets. However, if bonus shares are subsequently sold, any capital gains realized may be subject to Capital Gains Tax (CGT).

Regarding corporation tax for companies issuing bonus shares, there are generally no immediate tax implications as they are not treated as income. However, any future sale of bonus shares by the company may result in Corporation Tax liability on any capital gains.