A bonus issue is one of the simplest ways a Singapore company can reward its shareholders without parting with a single dollar of cash. Instead of paying a cash dividend, the company converts its accumulated profits or reserves into new shares and issues them to existing shareholders for free, in proportion to their current holdings. The company’s total value does not change — but shareholders end up holding more shares, and the company’s share capital grows.
This guide explains what a bonus issue is, why companies do it, the exact steps and resolutions required, the ACRA filing obligations, and how a bonus issue differs from a rights issue and a share split.
What Is a Bonus Issue?
A bonus issue — sometimes called a scrip issue or capitalisation issue — is the allotment of new fully paid shares to existing members without any payment from them. The shares are paid up by capitalising the company’s reserves: retained profits, a share premium account (for pre-2006 structures) or other distributable reserves are converted into paid-up share capital.
Because no money changes hands, a bonus issue is fundamentally different from an ordinary share allotment. The company is effectively moving value from one part of its equity (reserves) to another (share capital). A shareholder who owned 100 shares before a one-for-one bonus issue will own 200 afterward, but the company as a whole is worth exactly the same.
Why Companies Make a Bonus Issue
Companies capitalise profits through a bonus issue for several reasons:
- Rewarding shareholders where the company wants to retain cash for reinvestment but still recognise shareholder value.
- Signalling confidence that reserves are sustainable and the business is healthy.
- Increasing the number of shares in issue to improve marketability, especially ahead of bringing in new investors or a future listing.
- Formalising retained earnings as permanent capital that cannot easily be paid back out to members.
That last point cuts both ways: once profits are capitalised into share capital, they can no longer be distributed as dividends. Reversing the position later would require a formal reduction of share capital, which is a more involved process.
Legal Requirements Under the Companies Act
A bonus issue must comply with the company’s constitution and the Companies Act 1967. Three things need to be in place:
1. Authority in the constitution. The company’s constitution must permit the capitalisation of profits and the issue of bonus shares. Most standard Singapore constitutions include this power; if yours does not, you may first need to alter the company constitution by special resolution.
2. Directors’ authority to allot shares. Under section 161 of the Companies Act, directors need the authority of the company in general meeting to issue shares, unless a prior general mandate is in place. A bonus issue is still an allotment of shares, so this authority must exist.
3. Sufficient distributable reserves. The company must actually have the profits or reserves it proposes to capitalise. Directors should confirm the amount available against the latest accounts before proceeding.
Step-by-Step: How to Carry Out a Bonus Issue
- Check the constitution and reserves. Confirm the power to capitalise profits and verify the reserves available.
- Board resolution. Directors resolve to recommend the bonus issue, fix the ratio (for example, one new share for every existing share), and identify the reserves to be capitalised.
- Members’ resolution. Shareholders pass a resolution approving the capitalisation and the issue of bonus shares. This is commonly done by ordinary resolution where the constitution allows, or by a written resolution in a private company.
- Allot the shares as fully paid to members in proportion to their existing holdings on the record date.
- Update the register of members and issue new share certificates.
- File the Return of Allotment with ACRA within 14 days of the allotment, as required by section 63 of the Companies Act.
ACRA Filing and Timing
| Requirement | Detail |
|---|---|
| Return of Allotment (Section 63) | Lodge via BizFile within 14 days of allotment |
| Consideration stated | Shares recorded as paid up by capitalisation of reserves |
| Register of members | Update to reflect increased holdings |
| Share certificates | Issue within 60 days of allotment |
Tax and Stamp Duty Treatment
Because a bonus issue involves no consideration passing from the shareholder, no stamp duty is payable on the issue of bonus shares — unlike a transfer of existing shares, which attracts duty and is covered in our guide to stamp duty in Singapore. For the shareholder, bonus shares are generally not treated as taxable income in Singapore, as they represent a capitalisation of existing value rather than a fresh distribution. Companies should nonetheless confirm the accounting and tax position with their tax agent.
Bonus Issue vs Rights Issue vs Share Split
These three actions are often confused but serve very different purposes:
- Bonus issue: free shares funded by capitalising reserves. No cash raised.
- Rights issue: shareholders are offered new shares to buy, usually at a discount. This raises fresh capital.
- Share subdivision (split): existing shares are divided into more shares. This does not touch reserves and does not increase paid-up capital.
Worked Example
Suppose Alpha Trading Pte Ltd has 100,000 ordinary shares in issue and S$500,000 in retained profits. The directors decide on a one-for-two bonus issue — one new share for every two held — capitalising S$50,000 of reserves at S$1 per share. After shareholder approval, the company allots 50,000 new shares to existing members in proportion to their holdings. A member who held 10,000 shares now holds 15,000. The company’s issued share capital rises by S$50,000 and its retained profits fall by the same amount. Total shareholder value is unchanged; the accounting entry simply reclassifies reserves as paid-up capital. The company then files the Return of Allotment with ACRA and updates its register of members within the statutory deadlines.
Accounting and Reserve Considerations
From an accounting perspective, a bonus issue is a transfer within equity — a debit to distributable reserves and a credit to share capital — with no impact on the company’s net assets or cash position. Directors should confirm which reserves are eligible to be capitalised and ensure the latest financial statements support the amount. Because the capitalised amount becomes permanent share capital, it is no longer available for future dividends, so companies that value distribution flexibility should size the bonus issue with that in mind.
Common Pitfalls
The most frequent mistakes are issuing bonus shares without the reserves to support them, missing the 14-day ACRA filing deadline, and failing to update the register of members. Directors should also remember that capitalising reserves permanently locks that value into share capital. If flexibility to return capital is important, other options such as a dividend may be preferable.
How Raffles Corporate Services Can Help
We prepare the board and members’ resolutions, calculate the correct allotment ratios, update your statutory registers, issue new share certificates, and lodge the Return of Allotment with ACRA on time. Speak to us at [email protected] or +65 8501 7133 to run your bonus issue smoothly.
This article is for general information only and does not constitute legal or tax advice.
— The Editorial Team, Raffles Corporate Services