A corporate action is generally defined as any type of event or decision that leads to a significant material change in the company. The implementation of a corporate action normally has an impact on shareholders and others who have a substantial stake in the success of the corporation. 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 on many different forms. One that usually has a direct impact on the individual shareholder is the splitting of shares. This type of corporate event is generally looked upon favorably by shareholders, as it means an increase in the number of shares held by each individual or entity holding shares of stock associated with the company.
Another example of a corporate action would involve the implementation of a merger. Mergers may be seen as desirable or unfavorable by shareholders, depending on the projected benefits that are anticipated, and the impact that the merger will have on the value of individual shares of stock. Corporations usually prepare detailed documents that help shareholders to understand what changes the merger will bring about, how the action is expected to impact the value of stock, and what the future organizational structure will mean in terms of continued productivity for the company.
Shareholders are not the only ones who are affected by the action. Bondholders may also feel the impact of a merger or corporate reorganization. Often, existing bonds are paid off as a result of the action, making it possible for the corporation to issue new bonds at a more advantageous rate of interest.
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 invited to vote on the measure before the action can take place. The bylaws and other founding corporate documents usually identify the specific provisions that must be met before a given corporate action may be implemented.