When a company builds up a reserve of capital it may decide to
issue additional shares to its existing shareholders free of
charge. This is called a capitalisation issue.
Example
X holds 1,000 £1 shares in a company with an issued
capital of £100,000 in £1 shares and reserves of
£250,000. The company makes a 1 for 1 capitalisation issue, it
issues a £1 share, from its reserves, for every share held.
After the capitalisation issue X has 2,000 £1 shares in a
company with an issued share capital of £200,000 and reserves
of £150,000.
On the first day on which dealings in the “new”
shares begins on the stock exchange, the quotation of the
“old” shares is adjusted to exclude the benefit of the
new shares. The “old” shares are marked XC on SEDOL (
IHTM18092).
