Companies may sometimes offer shareholders a choice of either a cash dividend or additional shares.

The company will benefit from the issue of shares in lieu of a cash dividend, because:

the company will not need to part with cash for the dividend,


for distributions made before 6 April 1999, the company will not have had to pay ACT.

Also, if a company already has surplus ACT, paying a stock (or ‘scrip’) dividend avoided increasing that surplus.

A stock dividend can arise either:

on the exercise of an option by a member to receive shares rather than cash,


on a bonus issue in respect of shares of a relevant class in the company.

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