Corporate actions: A shareholder's guide
Learn how a change in a company's structure may affect shares in your portfolio.
CIBC Investor’s Edge
May. 17, 2021
4-minute read
As an investor, you have your eye on the holdings in your portfolio. You may have noticed that from time to time securities held in your account may be subject to a shareholder vote which can drive mandatory changes, like a name change, consolidation or stock split, or voluntary actions, like a take-over bid, purchase offer or merger with options.
Corporate actions can be mandatory or voluntary and, depending on the event type, shareholders may be given a choice as to how a corporate action impacts them. This guide will help you understand corporate actions at a very high level, including your options as a shareholder.
What is a corporate action?
The term “corporate action" is used to describe a change in a company's structure. While there are many types of corporate actions, some common examples include:
- Changing the company name or brand
- Stock splits or reverse splits – when a company divides the existing shares of its stock into multiple new shares or consolidates existing shares into a smaller number of shares
- Dividends or distributions – when a company decides to issue dividends or other distributions to shareholders out of the earnings or profits of the corporation
- Mergers and acquisitions – when companies merge or one company acquires part or all of another company
How mandatory corporate actions can affect shareholders
Mandatory corporate actions are initiated and implemented by a company's board of directors. For example, a company might decide to change its name. It will issue a mandatory corporate action in the form of a notice to investors about the name change. Once the change is complete, the company shares will be renamed in the shareholders' investment accounts.
Shareholders may be offered an opportunity to select how a corporate action will affect them. If a company decides to issue dividends as a mandatory corporate action, shareholders may sometimes be given the choice whether the dividends will be paid to them in cash or reinvested in company shares.
A mandatory corporate action that allows shareholders to choose how they are affected by the action is known as a “mandatory action with options." If a shareholder doesn't choose from among the available options, a default option is applied to their account.
Voluntary corporate actions: Your opportunity to participate
Examples of voluntary corporate actions include an offer to an investor to buy or sell shares at a specific price, like a purchase offer, take-over bid or issuer bid, or an offer to exchange shares the investor owns for a new type of share. With voluntary corporate actions, each shareholder can decide whether they would like to participate or not.
Opting into a voluntary corporate action is called making an “election.” In case of voluntary actions, investors usually have to contact their broker before the expiry date to indicate if they want to participate. Even if a shareholder decides not to participate, their account may be affected by a voluntary corporate action if the bid or tender is successful and reaches the minimum amount of take up needed to force a mandatory take up or default.
For Canadian-reporting issuers held in your account, securityholder communications will be delivered to you in accordance with your disclosure and delivery choices. For non-Canadian companies, securityholder information is typically mailed in accordance with corporate and securities laws.
If a security or asset you hold in your portfolio is subject to a corporate action, the best place for more information is the company's website. Hint: start with the company’s press releases — you’ll likely find all the information you need there.
Keep in mind that shareholders can only respond to a proposed corporate action — whether mandatory or voluntary — after the details of the action have been finalized and published.
Once this happens, contact us. For mandatory corporate actions with options, we can help you find out if and when you can select an option. For voluntary corporate actions, we can help you make any elections.
