Corporate actions are events or decisions that result in significant changes to a company, affecting shareholders and other stakeholders. Examples include stock splits and mergers, which can have varying impacts on stock value and bondholders. Approval from the board of directors and sometimes shareholders is required before implementation.
A corporate action is generally defined as any type of event or decision that leads to a material change in the company. The implementation of a corporate action typically affects shareholders and others who have a substantial stake in the corporation’s success. In the best scenarios associated with this action, all parties involved benefit from the implementation of the action.
It is possible for a corporate action to take many different forms. One that usually directly affects the shareholder is the stock split. This type of corporate event is generally viewed favorably by shareholders as it signifies an increase in the number of shares held by each individual or entity holding shares associated with the company.
Another example of corporate action would involve implementing a merger. Mergers can be viewed as desirable or unfavorable by shareholders depending on the projected benefits that are anticipated and the impact the merger will have on the value of individual stocks. Companies often prepare detailed documents that help shareholders understand what changes the merger will bring, how the stock is expected to impact stock value, and what the future organizational structure will mean in terms of continued productivity for the company.
Shareholders are not the only ones affected by the action. Bondholders can also feel the impact of a merger or corporate reorganization. Often, existing bonds are paid off as a result of the action, enabling the company to issue new bonds at a more advantageous interest rate.
Matters that properly constitute a corporate action normally must be presented to the board of directors for approval before the action can be implemented. In some cases, shareholders may also be asked to vote on the measure before action can take place. Bylaws and other founding corporate documents often identify specific provisions that must be met before a particular corporate action can be implemented.
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