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Different types of Corporate Actions

  • Aug 24, 2023
  • 6:08 pm

Different types of Corporate Actions:-

a) Dividends- A dividend refers to a kind of reward, cash or otherwise, that a company provides to its shareholders. Dividends can be issued by the company in various forms, such as cash payment, stocks, or any other form. The dividend of the company is decided by its board of directors and it requires the shareholders’ approval.

b) Bonus shares- The company's offering of no-cost shares to current shareholders is known as a bonus issue. As an alternative to paying dividends, a firm may decide to distribute more shares in proportion to the already held shares by the existing shareholders. The investment value of the firm remains the same and hence there is no change in the overall capital of the company.

c) Stock split- In a stock split, the shares of the firm are issued in an increased number, but the market capitalization stays the same. Although existing shares were split, the underlying value is not altered. The price per share decreases as the number of shares rises. The stock split is performed in order to increase liquidity and lower the price of shares for a variety of investors who previously were unable to purchase them due to the company's high share prices. While a stock split alters the company's authorized share capital, the distribution of bonus shares only affects the issued share capital and not the total value.

d) Rights issue- Rights issue is a corporate action in which a company offers its existing shareholders, the chance to buy additional shares in proportion to their holdings, at a discounted price.

e) Offer For Sale (OFS)- An Offer For Sale (OFS) is a system that allows the promoter of a company to sell their shares to institutional and retail investors through exchanges.

f) Buyback- A corporation will purchase back its shares from its shareholders as part of a buyback. Usually, firms repurchase their stock at a premium to the going market rate. In order to repurchase shares from shareholders, companies may use either of the following strategies:

  • Tender offer: In a tender offer, the corporation offers to purchase back its shares from the owners at a certain price (the "offer price").
  • Open-market offer: By actively purchasing shares from sellers on the exchange, the corporation can repurchase its stock. The buyback period, which can take months to guarantee that there is no major price change as a result of the buying activity, is stated in the buyback offer.

"Content shared is for information and education purposes only and should not be treated as investment or trading advice. Please do your own analysis or take independent professional financial advice before making any investments based on your own personal circumstances."

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