Splitting Hairs

May 9, 2007 (LBO) – Firms that declared a 'bonus' issue but have not yet ratified it with a shareholder vote will have to go through a process under the new company law and 'split' the shares, officials and legal experts said. A new company law came into effect in Sri Lanka on May 03, under which the concept of a traditional bonus share issue where reserves are 'capitalized' to issue a share with a 'par value' is no longer in operation.

Instead shares would have to be split into new ones.

"This means companies that simply declared a bonus issue and have not passed it through a shareholder's vote will have to go through the process specified in the new law," Arittha Wikramanayake of Nithya Partners told LBO.

"Companies whose articles do not permit a split will have to also change the articles," he added.

Officials say the bonus declaration made under the old law would no longer have any legal effect, because the declaration would have lapsed.

Colombo Stock Exchange Director General Surekha Sellahewa said there were different schools of thought about the interpretation of the new law and a legal opinion had been sought.

"The CSE is writing to listed companies that have pending bonus issues