What Constitutes Corporate Action

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Corporate action entails the major activities undertaken by entities in the normal course of business (from creation to liquidation), which determine status as a legal entity and shapes the future of the business. Including the participation of others in various capacities such as shareholders.

It generally involves the actions of a governing body of the company (board of directors) and often authorized by the shareholders at general meetings. The actions can be in the form of changes in the share capital, equity and voting structure, or other capital shares of the shareholders.

The rights of existing shareholders may be restricted, in the event that new shares are issued. According to the corporation stock law in relation to the rights of existing shareholders regarding profit sharing and participation.

The increase in debt by the issue of a bond is not described as corporate action. Although it changes the capital structure of a society, and the amount of the capital stock by such increase of the debt is not modified.

The following corporate actions can change the capital stock of a corporation in relation to its size: capital increase and capital reduction. The classification of corporate actions is difficult, because of the extent of committed actions, their character and the procedure depending on the organizational and legal form of legal entity.

Some operations are not capital measures but are associated with the following corporate actions: distributions (dividend), tender offer, delisting, repurchase offer, exclusion of minority shareholders, issue of bonus shares and name change.

Problems arising from securities are not usually physically delivered, but posted in the corresponding custodians of securities accounts. The securities titles whose stock value will be modified by transfers must be changed.

A capital reduction leads to the repayment of the face value difference. A stock split changes the par value per share, leading to a value-neutral split of such shares.

Securities transactions can be classified according to the possibilities of action available to the owner:

    – Required: the event is mandatory and will occur no matter what. The owner has no other options or control.
    – Required with choice: the event is mandatory and will occur no matter what. The owner must choose between different options. There is often a default option which will be applied if the owner does not appear before a specified date.
    – Voluntary: the owner must simply decide on which course best suits him, under the conditions described in the event.

 

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