By David Gass

A corporate action can be defined as a decision undertaken by the mutual consent of the board of directors of a company. A corporate action creates a direct impact on the stakeholders of the company including the shareholders and the bondholders. Companies may or may not involve the shareholders to vote for the decision taken, depending on the nature of the corporate decisions. After undermining a particular corporate action, the investor gets a better picture about the financial performance of a company. Adequate knowledge about corporate actions is essential, since investors can decide whether to deal with the particular company’s stock or not.

Different kinds of Corporate Actions

The following are some of the common corporate actions, which the companies take.

Stock Splits: Also known as a bonus share, a company divides the outstanding shares in order to boost the liquidity of its stock. Although, the stock splits have very negligible impact on the company’s equity or net assets, the number of outstanding shares increases significantly.

Dividends: These can be categorized into cash or a stock dividend. Dividends are retained earnings of the company that can be announced semi-annually, annually or quarterly. In cash dividend policy, the shareholders get a pre-decided cash dividend per share. A stock dividend is somewhat different from cash dividend, wherein the shareholders get an extra share or more for every number of shares they hold.

Rights Issue: Under this corporate action, companies issue new shares to their existing shareholders. If the response from their existing shareholders is not favorable enough, then new shares are offered to the general public. Rights issue adversely affects a company’s earnings per share, commonly known as EPS.

Mergers and Acquisitions: The most significant of all the corporate actions is a merger or acquisition by companies. Acquisition happens when a company acquires the majority shares of the target company. A company surrenders all its existing stock to the agreed company under the said terms and conditions. The stock prices of the companies involved are affected by acquisitions to a great extent. The value of the target company’s stock usually increases, whereas the value of the acquiring company’s stock decreases for a temporary period. Shareholders of the companies and regulatory authorities have to approve these consolidation activities.

In addition to these primary corporate actions there are other related events like capital reduction, conversion of securities, interest payment, minority offers and suspension. The board of directors takes these actions due to various reasons. For instance, when they find excess capital they opt for capital reduction. Similarly, suspension occurs when the company finds that a drastic change in the price of the shares is about to happen.

There are various softwares and information available in the markets that provide the necessary guidelines to educate the investors. These softwares are readily available at an economical price for the benefit of the investing community. It makes no sense to invest your hard earned money in something you are not sure will reap you the necessary benefits!

David Gass is President of Business Credit Services, Inc., founder of www.SmallBusinessConsulting.com and co-developer of the BizDoc Software which manages the records of a Corporation or LLC. For a Free Trial of the software visit www.businessdoc.com

By David Gass

A Shareholder Meeting is presided over by the Chairman. The responsibility of coordinating the meeting wrests with him unless the chairman assigns this responsibility to someone else. The formalities to adhere with, before calling a shareholders’ meeting, are

• Participants’ List : Preparing a comprehensive list of the participants of the meeting is the very first step in conducting a shareholder meeting. All the participants should be carefully noted to avoid any discrepancy of leaving someone important out of the meeting.
• Proper Notice : A proper notification, well in advance, should be issued to all the participants about the venue, timing and a brief agenda of the meeting. It should ideally be followed by a courtesy call reconfirming their intent to be present at the meeting.
• Agenda : A clear and well chalked out agenda should be formulated and circulated among the organizers and the participants, giving them a brief and a fair idea as to what is expected in the meeting.
• Reference Material : Any reference material having relevance to the meeting should be lined up. These can be documents such as the company’s charter, figures or reports which could be of importance regarding the agenda of the meeting and which might help the board to have a more comprehensive view of the situation in hand and facilitate a decision in that regard.

Importance of Shareholder Meeting:

Some of the aspects that come under the umbrella of Shareholders and which can not be decided without their consent are:

• The decisions pertaining to classes of shares, rate of annual dividend on respective class of shares.
• The decisions related to any change in management or board of directors such as addition or termination of its members.
• All the subjects related to the company’s image in the market or any damage to it.
• Decisions related to acquisition of other company.
• Decisions related to dissolution of the company.
• Approval of annual financial statements.

Essentials of Shareholder Meeting:

There needs to be not less than a specific number of participants for a meeting to be conducted. This is known as Quorum. Generally, the assembled shareholders should qualify for more than 51% shares, otherwise the status of the meeting remains unofficial and is devoid of the power to implement any decision or pass any resolution, and hence the Quorum should be religiously adhered by the coordinator of the meeting for making the efforts worthwhile. Although generally it is required to have a majority or more than 50% of votes to preside over any resolution, there are some aspects and subjects in a company’s charter where, according to law it is required to gather more than 65% votes to pass a particular resolution. These subjects include

• Decisions on the classification of shares and the number of shares to be offered to the particular class.
• Introduction of any change in the company’s charter.
• Dissolution of the organization.

There can be provisions of virtual shareholder meeting wherein physical presence can be replaced by face to face
interaction even from a distance. There are softwares available in the market to assist corporations in streamlining their efforts to conduct a smooth shareholder meeting. These softwares assist in documenting the meeting and provide other considerable assistance to minimize human errors and efforts.