A cash-in-lieu payment is a sum of money paid to an investor in place of a fraction of a share. Fractions arise when a corporate action applies a ratio to a holding and the result is not a whole number, as can happen in a stock split, a stock dividend or a merger paid in shares. A holder of 25 shares in a one-for-two consolidation, for instance, is entitled to 12.5 new shares. Since most markets do not issue or settle part shares, the holder receives 12 shares and cash for the half.
The amount is usually found by adding together all the fractional entitlements, selling the resulting whole shares in the market and sharing the proceeds, or by applying a reference price set by the issuer. The method is one of several described under fractional share treatment. The payment is generally taxed as a disposal of the fractional share.