List of corporate actions in Stock Market | Meaning, types and Example

When you invest in the stock market and buy shares of a company, you become a part-owner of that company. As a shareholder, you’re not only affected by the ups and downs of share prices but also by the decisions that the company makes. These decisions, when they directly impact the shareholders, are called corporate actions.

In simple words, Corporate actions are events initiated by a company that affect its shareholder and the value of their investments. These actions can be either mandatory, meaning all shareholders are affected, or voluntary, where shareholders have a choice. They are crucial for investors to understand as they can significantly impact stock prices and investment strategies.

Companies announce corporate actions for different reasons: to reward shareholders, raise funds, restructure the company, or comply with regulations. Every corporate action is approved by the company’s board of directors and, in many cases, needs approval from shareholders or market regulators. These corporate actions are usually announced on the stock exchange, and investors are informed in advance. It’s important for every investor to understand what each action means so they can make informed decisions.

Understanding these actions helps investors make informed decisions, manage their portfolios effectively, and potentially capitalize on market opportunities. Each action has its own implications, so staying informed is key to navigating the stock market successfully.

What are Corporate actions?

Corporate actions are important events that companies initiate, which can affect their shareholders and investments. These actions can change the value of a company’s stock and how it’s owned. There are two main types of corporate actions: mandatory and voluntary. Mandatory actions affect all shareholders, such as when a company pays dividends, which is a share of the company’s profits. Voluntary actions, on the other hand, give shareholders a choice, like selling shares back to the company at a specific price.

Some common examples of corporate actions include stock splits, where the number of shares increases but the overall value remains the same, and mergers and acquisitions, where companies combine or one company takes over another. These actions can significantly impact an investor’s portfolio and influence decisions on buying, selling, or holding stocks. By staying informed about corporate actions, investors can make smart decisions and manage their investments effectively.

Importance of Corporate Actions :

Understanding corporate actions is critical for investors because:

• They directly impact the value of investments
• They may require decisions that affect ownership rights
• They alter risk profiles of securities
• They provide insights into company strategy and financial health
• Failure to respond to voluntary actions can result in lost opportunities

Types of Corporate Actions :

Mandatory Corporate Actions :

A mandatory corporate action is a decision taken by a company that automatically applies to all its shareholders, whether they want it or not.

Common examples :

• Stock Splits: Stock splits change the number of a company’s shares and their price, but not the overall value of your investment. Imagine you have a pizza cut into eight slices, and you decide to cut each slice in half. You now have sixteen slices, but you still have the same amount of pizza. A stock split is similar. For example, in a 2-for-1 stock split, an investor who owns one share now owns two. The price per share is halved, but the total value of their investment remains the same. Think of it like this: if a stock is trading at $100 before the split, it would be around $50 after the split, but the investor has twice as many shares.\

Companies do stock split to make their stock more affordable for investors. A lower stock price can attract more buyers, increasing demand and potentially boosting the stock’s value. It’s a way for companies to signal confidence in their future prospects.

• Reverse Splits: A reverse stock split decreases the number of a company’s shares and increases their price, but the overall value of your investment remains the same. If a company’s stock price gets too low (like under $1), it can be seen as a sign of trouble. A reverse split increases the price per share, which can make the stock look more attractive to investors and help the company meet the minimum price requirements to stay listed o a stock exchange. A higher stock price can sometimes give the impression that the company is doing better, which can attract more exchange.

For example, you own 100 shares of the company’s stock. The stock price is $1 per share. You now own only 10 shares (100 shares/10). But, the price per share is now $10(1/*10). Your investment’s total value stays the same, but you have fewer shares.

• Cash Dividends: Cash dividends are payments a company makes to its shareholders from its profits. It’s a way for the company to say “thank you” to its shareholders for investing in the company. Companies that pay dividends are often seen as more stable and reliable investments, which can attract investors looking for a steady income stream. Paying dividends can signal that the company is profitable and has enough cash to share.
  • How do dividends work?
    • Declaration: The company’s board of directors decides to pay a dividend. They announce the amount of the dividend per share, the date of record (who gets the dividend), and the payment date (when the dividend is paid).
    • Record Date: If you own the stock on the record date, you are entitled to the dividend.
    • Payment Date: The company sends you the dividend payment, usually in cash, to your brokerage account.

For example, let’s say you own 100 shares of a company, and the company declares a dividend of $0.50 per share. Your dividend payment will be 100 shares/*$0.50/share= $50.00. You would receive $50.00 in cash from the company.

• Stock Dividends: Stock dividends are additional shares of a company’s stock given to shareholders instead of cash. Instead of giving shareholders cash, a company can issue stock dividends. It allows the company to reward shareholders without using up its cash reserves. This can be helpful if the company wants to invest in growth opportunities. Stock dividends increase the number of outstanding shares, which can make the stock more accessible to a wider range of investors. Similar to cash dividends, issuing stock dividends can signal that the company is doing well and has a positive outlook.
  • How do stock dividends work?
    • Declaration: The company’s board of directors declares a stock dividend, specifying the dividend rate (e.g., 5% stock dividend).
    • Record Date: Shareholders who own the stock on the record date are entitled to the dividend.
    • Distribution: The company issues the new shares to the shareholders, usually through their brokerage accounts.

For example, Let’s say you own 100 shares of a company, and the company declares a 10% stock dividend. 100 shares/*10%=10 new shares. You would now own 100+10=110 shares.

• Name Changes: The name change is usually announced by the company. The stock ticket symbol may also change.
  • Why do companies change their names?
    • To reflect a change in the company’s business, products, or services.
    • After a merger or acquisition, the surviving company might change its name.
    • To distance themselves from a negative event or reputation.
    • To better appeal to a target market or create a new brand image.
    • To comply with new laws or regulations.
  • How does a corporate name change work?
    • Decision: The company’s board of directors or management decides to change the name.
    • Shareholder approval: In some cases, the shareholders (owners) of the company need to vote and approve the name change. This is more common for public companies.
    • Legal Filings: The company files the necessary paperwork with the relevant government agencies (e.g., Secretary of state) to officially register the new name.
    • Notification: The company notifies stakeholders, including customers, suppliers, employees, and investors, about the name change.
    • Implementation: The company updates its branding, website, marketing materials, legal documents, and other assets to reflect the new name.

Mandatory Corporate Actions with Options :

This is a special type of corporate action where:

• The corporate action is mandatory (you can’t avoid it).
• But the company gives you some options to choose how you want to receive the benefit.

So, you must participate, but you can choose the form in which you get the benefit.

Common examples :

• Dividends with options – The company might give you a choice: take the dividend as cash or as shares.
  • Dividends: When a company makes a profit, it can share some with its shareholders through dividends, usually cash payments.
  • Options: Special contracts giving you the right to buy (call option) or sell (put option) a stock at a set price (strike price) before a certain date (expiration date).
    • How Dividends Affect Options:
      • Call options might become less valuable when a dividend is announced, as the stock price may drop.
      • Put options could gain value, as the stock price drop makes the option to sell at a higher price more valuable.
    • Key Points:
      • Option prices already account for expected dividends.
      • To get the dividend, you must own the stock before the ex-dividend date.
      • Traders use strategies to manage options around dividend announcement.
• Buybacks with part acceptance – You may be forced to sell a certain portion of your shares, but get to choose how many you want to offer.
  • Stock Buyback: A company buys back its own shares from investors, reducing the number of shares available and potentially making the remaining shares more valuable.
  • Partial Acceptance: When a company wants to buy back a specific number of shares, but more people want to sell than the company can buy, it uses partial acceptance. This means the company will buy only a portion of the shares offered by each seller.
    • How it Works:
      • Company announces buyback offer.
      • Investors decide to sell or not.
      • If oversubscribed, company uses partial acceptance (proportional or lottery system).
• Mergers with consideration options – You must accept the merger, but you may choose to receive cash, shares, or a mix.
  • What is a Merger?
    • A merger is when two companies combine their businesses, resources, and operations to become one.
  • Consideration Options:
    • When a merger happens, the shareholders of the target company need to be compensated. This compensation is called consideration, and it can be:
      • Cash: The acquiring company pays the target company’s shareholders in cash.
      • Stock: The acquiring company gives its own stock to the target company’s shareholders.
      • Combination: A mix of cash and stock.
  • Pros and Cons of Each Option-
    • Cash: Simple, provides immediate value, but requires the acquiring company to have a lot of cash.
    • Stock: Doesn’t require immediate cash, but target shareholders become part of the new company and their ownership is diluted.
    • Combination: Offers a balance, providing some immediate cash and potential for future growth, but is more complex to structure.

Voluntary Corporate Actions :

A voluntary corporate action is a decision taken by a company where you, as a shareholder, get to choose whether you want to participate or not.

Common examples:

• Tender Offers: A tender offer is a public offer by a company or an individual to purchase some or all of shareholders’ shares. Shareholders can choose to sell their shares, and if enough shareholders accept, the acquiring company takes control.
  • How it Works:
    • The acquiring company announces the terms of the offer.
    • Shareholders decide whether to sell their shares at the offered price.
    • If enough shares are tendered, the acquiring company buys the shares and pays the shareholders in cash.
  • Examples-
    • Friendly Tender Offer: Acquiring company makes a tender offer to buy all outstanding shares of target company.
    • Hostile Tender Offer: Acquiring company makes a tender offer directly to target company’s shareholders, bypassing management.
  • Why Tender Offers?
    • Speed: Faster than other acquisition methods.
    • Direct Access: Acquiring company can go directly to shareholders, bypassing target company’s management.
    • Hostile Takeovers: Often used in hostile takeovers where target company’s management is not supportive.
• Rights Offers: A rights offer gives existing shareholders the right to purchase new shares of stock in proportion to their current holdings.
  • Why Do Companies Offer Rights?
    • Companies use rights issues to raise money. Reasons include:
    • Paying off debt
    • Funding new projects
    • Improving cash flow
    • Acquiring another company
  • How Does It Work?
    • Step 1: You Already Own the Stock
      • You must be a shareholder as of a specific record date.
    • Step 2: You Get Rights
      • You receive “rights” to buy more shares at a discounted price.
      • The number of rights depends on how many shares you already own.
    • Step 3: You Choose What to Do
      • You can:
        • Use your rights to buy more shares at the discount
        • Sell your rights to someone else
        • Ignore the rights (they’ll expire)

For example, you own 100 shares of company ABC, whose current market price is ₹100 per share. Company announces a 1-for-5 rights issue at ₹80. This means for every 5 shares you own, you can buy 1 share at ₹80. You have 100 shares → 100 ÷ 5 = 20 rights. You can buy 20 new shares at ₹80 each.

• Proxy Voting: Proxy voting allows shareholders to vote on company matters without attending the shareholder meeting.
  • Why Is Proxy Voting Needed?
    • Public companies have thousands or even millions of shareholders, and they can’t all attend meetings in person.
      • So, shareholders vote:
        • Online
        • By mail
        • Or give someone else the right to vote for them.
  • When Do You Use Proxy Voting?
    • During Annual General Meetings (AGMs) or Extraordinary General Meetings (EGMs), where important decisions are made, like:
      • Electing board members
      • Approving mergers
      • Voting on dividends
      • Changing company policies
      • Executive pay packages
  • Who Can Be a Proxy?
    • A proxy can be:
      • The company’s management (often suggested by default)
      • A friend, family member, or professional advisor
      • A proxy advisory firm (especially for big institutional investors)
  • How Proxy Voting Works (Step-by-Step)?
    • Step 1: Notice
      • You receive a proxy statement — a document with:
      • Meeting details
      • Items to vote on
      • Instructions to vote
    • Step 2: Vote or Assign Proxy
      • You can:
        • Vote online or on paper
        • Appoint someone to vote for you
    • Step 3: Voting Deadline
      • Submit your vote before the deadline (usually 1–2 days before the meeting)
  • Types of Proxy Voting
    • Discretionary Proxy: Proxy decides how to vote on each issue.
    • Directed Proxy: You tell the proxy exactly how to vote on each issue.
    • Electronic Proxy: You vote online, using the company’s or broker’s platform.
• Warrant Exercises: A warrant exercise involves using a warrant to purchase shares of a company’s stock.
  • Key Features of a Warrant:
    • Exercise Price: The fixed price at which you can buy the stock.
    • Expiry Date: The last date you can use the warrant.
    • Conversion Ratio: How many shares you get per warrant (usually 1:1).
    • Cash Settled or Share Settled: Do you get cash or actual shares on exercise?
  • Two Types of Warrant Exercise:
    • Cash Exercise: You pay cash to buy shares.
    • Cashless Exercise: You get fewer shares instead of paying cash.

For example, you own 1 warrant of Company ABC. The exercise price is ₹50. The stock is currently trading at ₹70. The conversion ratio is 1:1 (1 warrant = 1 share). You can pay ₹50 and get 1 share worth ₹70, so you make a profit of ₹20.

Conclusion

Corporate actions are an important part of the stock market that every investor should understand. Whether you’re a beginner or an experienced trader, knowing what corporate actions are, and how they affect your shares, helps you make smarter decisions. These actions reflect a company’s financial health, growth plans, and how it treats its shareholders. Some actions are mandatory, meaning they happen automatically for all shareholders, like dividends or stock splits. Others are voluntary, giving you the choice to participate, like rights issues or buybacks. And some are mandatory with options, where you must participate but get to choose how. By staying informed about corporate actions, you can protect your investments, take advantage of new opportunities, and better understand the companies you’ve invested in. In short, corporate actions are not just routine events they are powerful tools that can impact your returns and help you plan your investment strategy wisely.

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