What are corporate actions?

Corporate actions are important events and processes in the company’s activity that have a strong impact on both the company itself and its related parties. Such decisions usually affect the company’s structure, organisation, operations, and assets, are taken by the board of directors and approved at the shareholder meeting. These events can have a significant impact on the value of the company’s stock.

Types of corporate actions

  • Mandatory corporate actions. They require mandatory participation of shareholders in the discussion and decision-making on a particular change related to the company. For example, stock splits, dividend payouts
  • Voluntary corporate actions. They give shareholders the option to choose whether to take part in certain processes initiated by the company’s management or not. For example, dividend reinvestment, the sale of shares in the market

Common corporate actions

1. Publication of financial statements. A public company provides information on its financial position, performance, and cash flows on a quarterly and annual basis. The main components of financial statements are:

  • Balance Sheet
  • Income Statement
  • Statement of Cash Flows
  • Notes to Financial Statements

2. Name or Trading Symbol Changes. A merger with another organisation may require the company to change its name to reflect a new structure or line of business. The ticker is updated to be more in line with the latest developments in the company’s operations or probably its marketing strategy.
3. Stock Splits. This is a process of splitting the outstanding shares in a certain proportion without changing the total share capital. As a result, the number of shares increases, but the value of each share reduces proportionally. This can create conditions for the shares to become more affordable and attractive to investors and increase the level of stock liquidity.
4. Reverse Stock Split. This is a process of proportionally reducing the number of outstanding shares without changing the total share capital. The reverse split is used by companies to increase the value of their stocks.
5. Dividends. This is a distribution of a part of the company’s profit among shareholders in line with its financial position and development strategy. They can take different forms, including cash payments, transfer of additional shares and other assets of the company.
6. Buyback. This is a process, during which a company buys its shares on the open market or from its shareholders. The purpose of such actions is, for example, to create conditions for a rise in the stock value, attract new investors, and increase the controlling interest of the remaining investors.
7. Mergers and Acquisitions (M&A). These are forms of business restructuring, in which companies combine their financial resources. Under the terms of a merger, two or more companies combine to form a new organisation, shares and controlling interests in which are distributed among the parties to the transaction. In case of an acquisition, one company purchases another one, following which the latter ceases to exist as an independent entity.
8. Secondary Public Offering (SPO). The company effects a public sale of the outstanding shares owned by existing major shareholders. In such a way, they can sell their shares in the company on the open market.
9. Follow-on Public Offering (FPO). The company issues an additional block of shares for sale on the open market or to particular investors to increase the share capital.
10. SPAC (Special Purpose Acquisition Company). This is a company created specifically for a merger with another private company (target company) seeking to go public without an IPO. SPAC raises investments through an initial public offering of its shares on the stock exchange. The funds raised are used to acquire the target company.
11. Rights Offering. This is a process, by which a public company offers its current shareholders to purchase new shares at a specific price and in a certain amount to raise additional capital. The terms are discussed by the parties to the transaction in advance.