Issuing shares

When a company issues shares, it must advise ASIC within 28 days by lodging a Form 484 giving information about the number of shares issued, their classification, the amount (if any) paid on each of the shares and the amount unpaid (if any) on each share.

Shares can be fully paid or partially paid. A full paid share is one on which no amount remains owing from the shareholder.

Bonus shares
Preference shares
Redeemable preference shares

Are issued with no amount payable to the company when the issue does not require any increase to the company’s share capital.

Give shareholders some right or preference, such as priority payment of dividends over other share classes.

Are shares that, according to their terms of issue, may be redeemed at the option of the company or the members, or at a fixed time or specified date.

Details of the members to whom the shares were allocated and their shareholding.

A Share Structure Table showing classes of shares, total number of shares issued, and amounts paid and unpaid.

Must advise ASIC of changes to its share structure in response to its annual statement.

The Replaceable Rules require a company to offer new shares to existing members of the company in the same proportion that the members already hold, before offering them to new members.

A public company will invite potential investors to purchase shares by issuing a prospectus. Investors will then complete an application form nominating the number of shares that they wish to purchase. As the investors send in their application money, the company will place this in a trust fund until the date on which the shares are actually allotted.

On allotment day, these funds are transferred into the company’s CAB and the shares are allotted. If the share issue is oversubscribed, this means that there were more potential investors applying for the shares than actual share available. In this situation, the over-subscription is repaid to unsuccessful investors.

The costs that the company must pay in order to set up the business and commence trading are known as the formation costs or preliminary expenses.

Fees paid to ASIC, the cost of printing the prospectus, legal consultation fees and other expense associated with the commencement of the company. Accounting standards require these costs to be treated as an expense, as it is difficult to define the future economic benefits arising from their payment.

The costs the company must pay in order to issue shares include costs that are incurred directly in connection with the issuance of the shares which would not have been incurred had the shares not been issued.

This includes items such as stamp duties, taxes, professional advisor’s fees, underwriting costs and brokerage fees directly related to the issue. Accounting Standards state that these are neither an asset nor expense but, rather, a deduction from equity. It is therefore deducted from the share capital amount.

Are issued to existing members of the company with no consideration (or payment) required. These existing shareholders receive a number of extra shares based on a proportion of their existing number of shares.

Does not generally have a great effect on the market price of shares, as the market often responds by reducing the market value of shareholding.

Bonus shares are issued as a reward for members, who may then receive a higher amount of dividend, or in order for the company to give some positive news to the market about prospects and to convert some of the company reserves into shares.

Bonus shares are issued from reserves. The effect on shareholder’s equity is that reserves are decreased, and paid-up capital is increased. Overall, the total of shareholders’ equity remains the same. Bonus shares are valued at the current market price.

Dividends are paid to the members of the company in proportion to the number or value of shares that they hold. Often, holders of preference shares have the right to payment before ordinary shareholders.

Out of profits, and this is often interpreted to mean any reserves that the company has. The Replaceable Rules set out the requirements for the amount, timing and methodology of payment of a dividend.

These are declared by directors of the company and paid to the members during the accounting period.

These are recommended by the directors of the company and are not declared and paid until of AGM of members.

As a percentage of the paid-up share capital.
As a number of cents per share.

Are recognized in the accounts on the date the directors declare them and are then paid on a later payment date.

Interim dividends are recognized in the accounts and paid on the date the directors declare them. As an interim dividend is declared and paid on the same day, these two entries occur together on the same date.

Decrease the CAB and decrease Retained Earnings. Both interim and final dividends are recognized in the Dividends note to the Balance Sheet.

Preference shareholders are usually entitled to the payment of a dividend before ordinary shareholders, though the payment of a dividend is not guaranteed as the company may not have made enough money for a dividend to be distributed.

Cumulative
Non-cumulative
Participating

If a dividend is not able to be paid in one year, it accumulates until such time as the company can pay it. These are called dividends in arrears.

If dividends on these shares are not paid in one year, then they do not carry over into subsequent years.

These are shares that can participate in the receipt of extra dividends once their initial dividend plus all ordinary dividends have been paid.

Paid on balance day
Recommended or proposed on balance day

Are paid out of the previous year’s profits. The entry made is a DEBIT to Retained Earnings and a CREDIT to Dividends. This is recognized in the first part of the Dividends note to the Balance Sheet, Dividends recognized in the current year.

These final dividends are paid out of the current year’s profit, so they are not recorded until the subsequent accounting period. This is recognized in the second part of the Dividends note to the Balance Sheet, as Dividends proposed by the directors but not provided for.

Interim dividends are always proposed and paid on the same day. If an interim dividend is listed in the Trial Balance, it has been paid on balance day, so the adjustment is made by debiting Retained Earnings or the Reserve account from which it is being paid.