Corporate Action

What Is a Corporate Action?

A corporate action is any activity that brings material change to an organization and impacts its stakeholders, including shareholders, both common and preferred, as well as bondholders. These events are generally approved by the company's board of directors; shareholders may be permitted to vote on some events as well. Some corporate actions require shareholders to submit a response.

Understanding Corporate Actions

When a publicly traded company issues a corporate action, it is initiating a process that directly affects the securities issued by that company. Corporate actions can range from pressing financial matters, such as bankruptcy or liquidation, to a firm changing its name or trading symbol, in which case the firm must often update its CUSIP number, which is the identification number given to securities. Dividends, stock splits, mergers, acquisitions and spinoffs are all common examples of corporate actions. 

Corporate actions can be either mandatory or voluntary. Mandatory corporate actions are automatically applied to the investments involved while voluntary corporate actions require an investor's response to be applied. Stock splits, acquisitions and company name changes are examples of mandatory corporate actions; tender offers, optional dividends and rights issues are examples of voluntary corporate actions.

Corporate actions that must be approved by shareholders will typically be listed on a firm's proxy statement, which is filed in advance of a public company's annual meeting. Corporate actions can also be revealed in 8-K filings for material events.

Common Corporate Actions

Corporate actions include stock splits, dividends, mergers and acquisitions, rights issues and spin-offs. All of these are major decisions that typically need to be approved by the company's board of directors and authorized by its shareholders.