Bonus Issues

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Bonus issues of shares are a common practice employed by private companies as a means to reward shareholders and increase the company’s equity base.  A bonus issue, also known as a capitalization issue or a scrip issue, involves the issuance of additional shares to existing shareholders, free of charge, generally in proportion to their existing holdings. This article aims to shed light on the bonus issue process in a Hong Kong private company and its implications.

Main reasons for carrying out a bonus issue

A company may issue bonus shares for various reasons, including to:

  • Align its share capital with its assets.
  • Reduce the market value of its existing shares and, therefore, potentially increase their marketability.
  • Create distributable reserves by subsequently cancelling the bonus shares by means of a capital reduction.
  • Return value to shareholders by subsequently redeeming or repurchasing the bonus shares.
  • Increase the amount of its issued share capital for regulatory or statutory purposes

Relevant sections of the Companies Ordinance

A company is able to issue bonus shares under the no-par regime.  Furthermore, under section 170(2)(d) of the Companies Ordinance, a company may allot or issue bonus shares with or without increasing its share capital.

As shares have no nominal value, the company is no longer required to transfer an amount to share capital if it issues shares for no consideration, but it could chose to do so (e.g. by capitalising profits). So a company may allot and issue bonus shares either with or without increasing its share capital.  Under section 140(2)(b) of the Companies Ordinance, shareholder’s approval is not required, provided that the bonus issue of shares is to members of the company in proportion to their shareholdings.  If the bonus issue is not in proportion to the existing shareholdings in accordance with section 140(2) of the Companies Ordinance, then shareholder approval is required under section 141 of the Companies Ordinance.

May bonus shares be issued to non-members?

There is no provision in the Companies Ordinance which expressly prohibits the issue by a company of bonus share to non-members.  However, it is hard to envisage a situation in which it could be in the interests of the company to allot shares gratuitously to third parties. 


When implementing a bonus issue of shares, companies need to comply with the relevant provisions stipulated in their articles of association as well as the Hong Kong Companies Ordinance. Furthermore, if the company is a SFC licensed corporation under the Securities and Futures Commission, or whose shares are listed on the HKEx, additional procedures would need to be taken to implement a bonus issue.

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YTL LLP is a law firm headquartered in Hong Kong, China.  This article is general in nature is not intended to constitute legal advice.