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Hi Mike!
Under the companies act, a company can use the share premium to pay fully paid shares under a bonus issue.
– Could you explain what does that mean?
Think of the “Capital employed” section of a statement of financial position
At the top you’ll find Share Capital
Next down you could well find Share Premium Account
The balance on that Share Premium Account has very limited legal uses and one of them (the most likely one in practice) is to finance the issue of fully paid bonus shares to existing members
In effect, the directors are converting the share premium account into more equity shares
OK?
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