Capital distributions: rights issue: other capital distributions
Capital distributions can also arise on rights and bonus issues in two other ways.
- The terms of a rights or bonus issue may give a shareholder the right to a fractional number of shares. For example, a bonus issue of one share for every three held would give the holder of 100 shares the right to receive 33 1/3 shares. The company will usually sell these fractional entitlements on the shareholder’s behalf and distribute the proceeds to them. It is quite likely that these payments will be small capital distributions.
- If shareholders allow their rights to lapse the company will often sell their entitlements and distribute the proceeds to them. The rights will lapse if the shareholder does not accept the letter of allotment or sell their rights nil paid.