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Q：
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What is Bonus Issue?
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A：
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A bonus issue is a process in which a company grants additional shares to its existing shareholders free of charge, without requiring any monetary contribution, based on their current shareholding.
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Q：
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Why do companies undertake bonus issues?
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A：
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There are several strategic reasons a company may choose to issue bonus shares:
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Enhance Share Liquidity
When bonus shares are distributed, the total share count rises, which can lead to a corresponding decrease in the trading price per share. This makes the shares more accessible to a wider range of investors, potentially encouraging more active trading on the market.
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An Alternative to Cash Dividends
When a company wishes to reward shareholders but faces cash flow limitations, it may opt to issue bonus shares instead of paying cash dividends. This allows the company to retain funds while still offering value to shareholders, helping to maintain investor confidence.
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Signal of Strong Financial Position
The decision to issue bonus shares using internal reserves reflects a company's financial strength. It indicates that the company has accumulated substantial profits over time and has strong confidence in its ongoing performance, future development, and its continued commitment to shareholder value.
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Q：
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Does a bonus issue affect voting rights?
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A：
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No, it does not. Companies issue bonus shares in a manner that maintains proportional ownership among existing shareholders, despite the increase in total shares. As a result, each shareholder’s percentage of ownership and corresponding voting rights remain the same.
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What internal funding options are permissible for a company when conducting a bonus issue?
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A bonus issue is typically funded by converting the company’s internal reserves into share capital, such as retained earnings or other distributable reserves. It does not require shareholders to contribute any new capital, as no additional funds are raised in the process.
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What are the general steps involved in implementing a bonus issue by a Malaysia private company?
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A：
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The general process for implementing a bonus issue begins with checking the constitution for power to undertake bonus issue and convene a board meeting recommending the bonus issue, fixing of entitlement date and confirming the source of funds to be capitalised, such as retained earnings or reserves. Unless the company’s constitution requires special resolution, shareholders’ approval via ordinary resolution must also be obtained. After the entitlement date, the board shall then pass a board resolution to allot the bonus shares. Once all necessary approvals have been secured, the company secretary will proceed with the statutory lodgement with the Companies Commission of Malaysia and update the register accordingly.
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