What is a Corporate Action

There is a very important section which you should never miss out on before analyzing a company and that is corporate actions. A corporate action is an event started by a company that will cause changes to the securities issued by the company.

The Corporate Action section includes below 6 points:

1) Board Of Directors (BOD):-

Board of Directors BOD is a team of people that represents the shareholders. It is a governing body that ensures the management of the company and meets at regular intervals to set the management rules and regulations.

The head of the Board of Directors BOD is the chairman or chairperson of the board.

2) AGM/EGM:-

AGM stands for Annual General Meeting. It is a yearly gathering of a company’s interested shareholders which is compulsory to attend.

At the AGM, an annual report is presented by the directors of the company which contains business strategy and performance.

EGM stands for Extraordinary General Meeting. It is scheduled at an irregular interval.

The meeting is called when there is some serious issue in the company like dealing with legal matters or removal of key people etc.

3) Dividend:-

A return on investment in shares is known as a dividend. It is the company’s decision whether to declare a dividend or not. Dividends are tax-free up to Rs. 10 lakh, and over and above are taxable @ 10%.

The above criteria are for India. If you are from some other country, then do a search for it on some other websites.

4) Bonus:-

Bonuses are free shares issued by the company to the investors.

Eg. If it says 5:20 then it means 5 free shares for every 20 shares held.

After giving a bonus the share price decreases proportionately. If you want a bonus then you have to buy at a higher price and this higher price will last still before the ex-bonus date. After you buy the shares, the share price is halved.

5) Splits:-

A stock split is an action in which a company divides the face value of its existing shares into smaller face value due to which the number of shares increases proportionately.

A shareholder bought 50,000 shares at a Face value (FV) of Rs. 2.

50000 x 2 = 1,00,000 (1 lac)

When the company splits the Face value (FV) to Rs. 1. 1 lac will become 50k.

So this is a loss. To keep the amount intact, the company will double the shares to 1 lac.

Share price 5000: Face value (FV) Rs. 2 – Before the split

Share price 2500: Face value (FV) Rs. 1 – After the split

6) Rights Issue:-

It is a corporate action in which a company raises money by offering shares to its existing shareholders. Basically, it is an invitation to the existing shareholders to buy additional shares.

The shares offered to each shareholder depend upon the number of shares they already hold. It goes by the ratio. The shares are offered at a discounted price to the market price.

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