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What is a Corporate Action?
A corporate action is any activity that brings material change to an organization and impacts its stakeholders, including shareholders, both common and preferred, as well as bondholders. These events are generally approved by the company's board of directors; shareholders may be permitted to vote on some events as well. Some corporate actions require shareholders to submit a response.
Types of Corporate Actions
Bonus Issue - Overview
Issued in a certain proportion only to the existing shareholders.
Eg : 2:1 bonus shares If you already own 1 share, you get 2 additional new shares.
Total holding of shares is now 3 shares instead of 1 share.
No need to pay any money for these shares.
Who pays for the Bonus shares? • Cash lying in free reserves and surplus of the Company
Moved to Capital. • Addition of fresh Capital.
fresh equity shares are issued to eligible equity shareholders in a specific ratio.
New shares are issued at the existing Face Value of equity shares of the Company. Face value remains the same post bonus issue.
Bonus Issue: Impact on Price of Share
Dividend - Overview
Dividend = Distribution of certain portion of Company’s profits to its shareholders.
Dividend pay out ratio = Dividends Paid Net Earnings
Net-Profits which aren’t distributed as Dividend = Put in the Free reserves and surplus of the Company.
Interim dividend : Given during the year is authorized by the Board of the Company.
Final dividend : Recommended by Board of the Company. Approved by its shareholders in the Annual General Meeting (AGM).