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In
corporate finance Corporate finance is the area of finance that deals with sources of funding, the capital structure of corporations, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analysis ...
, a scrip issue, also known as capitalisation issue or bonus issue, is the process of creating new shares which are given free of charge to existing
shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a Trust law, trust or partnership) that is registered by the corporation as the ...
s. It is a form of secondary issue where a company's cash reserves are converted into new
shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known ...
and given to existing
shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a Trust law, trust or partnership) that is registered by the corporation as the ...
s, or an issue of additional shares to shareholders in proportion to the shares already held. A scrip issue is usually done when a company does not have sufficient liquidity to pay a cash dividend. A company declaring a ''scrip dividend'' gives the shareholders the option to either receive the dividend in cash or to receive additional shares. This is different than a bonus issue as shareholders do not have a choice with a bonus issue event. Scrip dividends are in some ways similar to DRIPs as they give the shareholders the option to receive the dividend in cash or stock. Unlike DRIPs, however, Scrip dividends are exempt from stamp duty and not subject to brokerage / dealing fees, because they are considered a stock issue by the company and not a reinvestment by the shareholder. The issue is calculated relative to existing holdings. This means that, for example, one new 'scrip' share may be issued for every ten shares currently owned. The
company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal person, legal or a mixture of both, with a specific objective. Company members share a common pu ...

company
issuing the scrip shares has now expanded the number of shares in existence, but not increased the value of the company. This means that the relative value of each pre-existing share has been reduced slightly. The investor has the right to sell the new
scrip A scrip (or '' chit'' in India) is any substitute for legal tender Legal tender is a form of money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III are contrasted wi ...
shares in the market. However, the investor must still report the cash value of the scrip dividend on his tax return like a normal cash dividend. This differs from a stock dividend in the United States, where the investor does not pay any tax on receipt of the shares and then only
capital gains Capital gain is an economic concept defined as the profit Profit may refer to: Business and law * Profit (accounting) Profit, in accounting, is an income distributed to the ownership , owner in a Profit (economics) , profitable market p ...
taxes on the stock dividend until the shares are sold.


See also

*
List of companies paying scrip dividends This is a list of publicly traded Company, companies that offer their shareholders the option to be paid with scrip dividends. References

{{DEFAULTSORT:Companies paying scrip dividends Dividends Corporation-related lists ...


References

Stock market Dividends {{economy-stub