Companies Act 2014 section 126

Bonus issues

Section 126 sets out the rules governing how a company may capitalise its reserves, distributable profits, or unrealised revaluation surpluses to issue fully paid bonus shares to its members.

• A company may capitalise amounts from undenominated capital, distributable profits, or unrealised revaluation reserves and use them to issue fully paid bonus shares to members in proportion to their existing entitlements.
• The capitalisation must be recommended by the directors and approved by the members in general meeting, and the directors are then obliged to carry it out.
• Directors have discretion to deal with fractional entitlements — including selling the fractional shares and distributing the net proceeds — and may authorise a person to enter into binding agreements on behalf of all members concerned.
• Where directors approve a bona fide revaluation of all fixed assets, the resulting net surplus over the previous book value may be credited to undenominated capital (excluding the share premium account) or used to pay up bonus shares issued to members.

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