Bonus Share Issue UK: How Scrip Issues Work (2026)
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A bonus share issue, sometimes called a scrip issue or capitalisation issue, lets a limited company reward its shareholders by issuing them additional shares rather than paying out cash. Each shareholder receives new shares in the same proportion as their current holding, so the balance of ownership between members does not shift.
The shares are paid up using reserves the company already holds, typically retained profits or a share premium account, rather than fresh money from the members. For company directors, this can be a useful tool when the business wants to return value to shareholders without draining cash from the balance sheet.
On this page I walk through how a bonus issue actually works in practice, the paperwork usually involved, and the decisions the board and shareholders need to make along the way.
Overview
A bonus issue is the allotment of new shares to existing members, paid for out of the company's own reserves rather than by the shareholders handing over cash. Because the company is effectively moving money from its reserves into share capital, the overall value of the business does not change.
Each member ends up holding more shares, but each share represents a slightly smaller slice of the same pie. Bonus issues are often used when a company has built up healthy reserves and wants to increase its issued share capital, signal financial confidence to the market, or adjust the share price to a more accessible level where the shares are traded.
The company's articles of association set the ground rules for how a bonus issue is carried out. Some articles let the directors declare and action a bonus issue on their own authority, while others require the members to pass a resolution first.
In every case, the process needs to be documented properly through board minutes and, where required, a shareholder resolution. The Companies Act 2006 governs the allotment of shares generally, and the paperwork should reflect those rules.
Key steps
- Check the articles of association. Before anything else, read the company's articles carefully to see what they say about capitalisation of reserves and bonus issues. The wording will tell you whether the directors can act alone or whether shareholder approval is needed. If the articles are silent or restrictive, you may need to amend them first.
- Confirm the reserves are available. A bonus issue must be funded from distributable profits or another lawful reserve such as the share premium account. The directors need to be satisfied the company has enough in the right reserve to cover the nominal value of the new shares being issued. This should be cross-checked against the most recent accounts.
- Hold a board meeting and pass the resolution. The directors meet to consider the proposal, agree the ratio of new shares to existing ones, and resolve to proceed. Where the articles allow it, the board can declare the bonus issue outright. Where shareholder approval is required, the board resolves to recommend the issue to the members.
- Obtain shareholder approval if needed. If the members must approve the bonus issue, this is usually done by ordinary resolution, either at a general meeting or by written resolution. The resolution should record the authority granted to the directors and the terms of the issue so there is no ambiguity later.
- Allot the shares and file at Companies House. Once the decision is made, the directors formally allot the new shares, update the register of members, issue share certificates, and file a return of allotments on form SH01 within one month. The company's statutory books should reflect the new share capital figure going forward.
Common questions
Q What is the difference between a bonus issue and a rights issue?
A bonus issue hands new shares to existing members for free, funded from the company's own reserves. A rights issue offers members the chance to buy new shares, usually at a discount, in proportion to their existing holding. The key difference is that a bonus issue does not raise new money for the company, whereas a rights issue is a fundraising exercise.
Q Does a bonus issue change the value of my shareholding?
In theory, no. The total value of the company stays the same, so while you hold more shares afterwards, each one represents a proportionally smaller share of the business. In practice, market perception can shift slightly when a listed company announces a bonus issue, but for a private company the economic position of each shareholder is essentially unchanged.
Q Do shareholders always need to approve a bonus issue?
Not necessarily. It depends entirely on what the company's articles of association say. Some articles give the directors express authority to capitalise reserves and issue bonus shares without referring back to the members. Others require an ordinary resolution of the shareholders. Always check the articles before assuming one route or the other.
Q Which reserves can be used to pay up bonus shares?
Bonus shares are typically paid up out of distributable profits, the share premium account, or the capital redemption reserve. The specific rules depend on the company's articles and the Companies Act 2006. Using a non-distributable reserve can have different consequences compared with using retained profits, so the source of funds should be chosen carefully.
Q What needs to be filed at Companies House?
After allotting the bonus shares, the company must file a return of allotments on form SH01 within one month. The confirmation statement will also need to reflect the updated share capital at its next filing. The register of members and the company's statutory records should be updated at the same time to keep everything consistent.
Q Are there tax implications for a bonus issue?
There can be, both for the company and for individual shareholders, and the position varies depending on the reserves used and the circumstances of the members. Tax treatment is outside the scope of this guide. A qualified accountant or tax adviser should be consulted before proceeding, so you understand how the issue will be treated for corporation tax, income tax and capital gains tax purposes.
Q Can a company reverse a bonus issue once it has been made?
Reversing a bonus issue is not straightforward. Once shares have been allotted and the register updated, unwinding the position usually requires a formal reduction of capital or share buyback, both of which have their own procedural requirements under the Companies Act 2006. That is why it is important to think carefully and document the decision properly before going ahead.
Sources
This guide is based on primary UK law and official guidance.
- LegislationCompanies Act 2006legislation.gov.uk
- Guidance · UK GovCompanies House form SH01 (Return of allotment of shares)gov.uk
- Guidance · Companies HouseCompanies House filing guidancegov.uk
Legal disclaimer
This article is for general information only. It is a tool to help you find your way — not legal advice, and not a substitute for speaking to a qualified adviser about your situation.