What is a corporate action?
A corporate action refers to a process through which a company changes its capital structure. This includes actions such as a capital increase, capital reduction or the payment of a dividend. Each of these changes affects the company itself as well as its shareholders, since the number of outstanding stocks, the stock capital or the composition of equity may change. Investors often notice the effects of corporate actions directly in their portfolio, as stock quantities and prices may change or new options may arise.
What is a corporate action in relation to stocks?
Corporate actions involving stocks specifically refer to processes that change the structure or number of stocks in circulation. These include stock splits, reverse stock splits, the issuance of subscription rights or spin-offs. For shareholders, such actions may result in new dividends, altered ownership proportions or additional portfolio options. Corporate actions can lead to a change in the number of stocks held or the allocation of new ones.
Types of corporate actions
Companies can carry out different types of corporate actions, including processes that affect the number of stocks, issue new stock or distribute profits. Corporate actions can be divided into two categories: actions with shareholder choice and actions without shareholder choice. To give you a clearer overview, here's a breakdown of the various corporate actions with and without voting options:
Corporate actions with choice
Corporate actions without choice
To help you understand them better, we explain the different corporate actions in detail below:
Stock splits
A stock split increases the number of stocks in circulation while proportionally lowering the price per stock. The company’s stock capital does not change. A split generally makes stocks more affordable and therefore more accessible to investors. On Bitpanda, the trading process is temporarily paused during the technical adjustment until the new stock quantity is updated in portfolios.
Reverse stock splits
In a reverse stock split, the number of existing stocks is reduced while the price per stock increases proportionally. Again, the stock capital remains unchanged. Companies often use this action when the stocks price has remained low over a long period. The adjustment is usually carried out automatically and results in a new stock count in the portfolio.
Mergers and acquisitions
During mergers or acquisitions, companies combine, acquire each other or form a new entity. For shareholders, this corporate action can mean that old stocks are replaced with new ones or that specific exchange conditions apply, such as a fixed conversion ratio or the option to accept a cash offer. Access to trading may be temporarily limited during the process until new structures are in place.
Capital reductions
A capital reduction decreases a company’s stock capital. This may be necessary to offset losses or adjust the balance sheet. It often involves reducing the number of stocks. Shareholders will then see a different stock count or an adjusted price in their portfolio.
Capital increases
In a capital increase, a company issues new stocks to raise additional capital or to convert existing assets into stocks capital. These new stocks may be offered to existing shareholders or new investors. If the increase doesn’t include subscription rights, existing shareholders may see their percentage ownership diluted. This is known as dilution. Besides the traditional cash capital increase, companies can also carry out non-cash capital increases, in which assets like patents, real estate or equity stakes are added to the company. Capital increases directly expand stock capital and change the stock structure.
Dividend payments
With a dividend payment, a company distributes part of its profits to shareholders. The amount and payment dates are defined and based on specific record dates. Investors receive the dividend only if they held the stocks during the relevant period. Dividend payments are a classic corporate action as they affect capital flows within the company and the shareholder’s portfolio.
Issuance of subscription rights
With the issuance of subscription rights (also known as a rights issue), shareholders are given the opportunity to buy new stocks at a fixed price. This option is usually offered during a capital increase and allows investors to maintain their existing ownership percentage. In many cases, the subscription right can also be sold if the shareholder doesn’t wish to exercise it.
Spin-offs
In a spin-off, a company separates a business unit and transfers it into a new entity. The spin-off takes place automatically once the company approves it, and in many cases, existing shareholders receive stocks in the new company. Sometimes, shareholders may be offered a choice between different forms of distribution or a cash settlement. Spin-offs often expand the portfolio and add new positions.
Stock dividends
With a stock dividend, shareholders receive new stocks instead of a cash payout. Companies typically use this approach to retain capital within the business. For investors, a stock dividend means an increase in the number of stocks in their portfolio without a cash transaction.
Takeover offers
A takeover offer is made when one company aims to acquire another. Shareholders can decide whether to sell their stocks at the offered price. This qualifies as a corporate action with choice, as investors must actively accept or reject the offer.
