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Scrip issue

A scrip issue is a form of secondary issue. In the United Kingdom, public limited companies, those listed on the London Stock Exchange, have a number of ways to create new shares. A scrip issue is the process of creating new shares which are given free of charge to existing shareholders. To the individual investor, this is known as a scrip dividend. This would normally be done in place of paying a dividend.

The issue would be 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 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 shares in the market. This can have the effect of reducing the income tax liability to the investor. By selling the issue, the investor is making a capital gain rather than receiving income. Since a very low percentage of UK resident investors ever pay capital gains tax, this is often a very tax efficient means of distributing wealth from a company to shareholders.

The UK Society of Investment Professionals (UKSIP) training manual for the Investment Management Certificate, describes the calculation required to predict the ex-scrip price as: "Ordinary shares held multiplied by the Original share price divided by the Total Number of New Shares held".

Main objectives of Scrip issue: 1: To increase the number of shares 2: To Reduce the share price 3: To Attract the shareholders by issue a bonus share instead of giving dividends, but the universally bonus shares are initiated to adjust the Share price. However Issuance of bonus share stimulates the demand of share which may cause a slight increase in share price. For example the ever highest price Of a company in a year is $500 current share price is $300 This gives an impression of low share price but in actual this is a sort of Trap for newbies, DO you know how? Yes there may be bonus shares issued by a company 1 for 2, it means the share price should be 500/2= $250 but the share price is $300!!! OH no the share price has not fallen in actual. so All that glitters are not gold. 4:Bonus share is also issued to give shareholders a "change of" existing shares. If you have one share of $1000 the bonus issue makes it 2 shares of worth 500 each it means You total wealth is same.

es:Dividendo en acciones

Source: Wikipedia | The above article is available under the GNU FDL. | Edit this article

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