Since a share dividend is issued to all shareholders of a particular class, each shareholder has a larger number of shares. However, ownership percentage of the company remains the same for each shareholder, as illustrated in the following example.
Assume that there are five shareholders in Sherbrooke Corporation, each of whom owns 1,000 shares before the share dividend. Each of these shareholders receives a 10 per cent share dividend, that is, 100 new shares. Corporation ownership before and after the share dividends is as follows:
Each shareholder has received 100 new shares but ownership percentage of the company remains at 20 per cent. Since total shareholders’ equity does not change, the proportion owned by each is still $25,000 ($125,000 total shareholders’ equity x 20%).
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