Final answer:
A gratuitous reissue of treasury shares results in a stock dividend, as existing shareholders receive additional shares without a cash transaction or property transfer. This transaction converts a portion of the firm's retained earnings into share capital, and shareholders may earn a return through dividends or capital gains.
Step-by-step explanation:
A gratuitous reissue of treasury shares, which are shares that were previously issued and then reacquired by the corporation, does not directly involve a cash transaction or a transfer of property. Since these shares are distributed without charge to existing shareholders, this transaction would result in a stock dividend. This means that shareholders receive additional shares of the corporation's stock for free, which represents a portion of the corporation's retained earnings converted into share capital.
Issuing stock enables a firm to raise capital for expansion and does not require repayment, which increases the firm's leverage in financial markets. The shares may yield rates of return either directly through dividends or indirectly through capital gains, where an investor profits from the increase in stock value over time. However, the process is complex and involves significant legal and financial expertise, along with compliance with regulations set by entities such as the SEC.