What is Corporate Action?

Malcolm Tatum

Corporate action is usually defined as any action on the part of a company that has a direct impact on the shareholders of the corporation. The impact is of a nature that the input of the shareholders is considered either desirable or mandatory, depending on the terms outlined in the founding documents of the company. Essentially, any action of a corporation that will affect the value of the investment made by a shareholder is considered to be a corporate action.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

Some types of corporate action are very well defined and apply to companies in just about any industry or field. Common corporate actions include mergers or proposed actions that will impact the distribution of dividends to the stockholders. In the event that corporations wish to split stocks, the input of shareholders is often considered necessary and thus constitutes a corporate action. Even the acquisition of another company by the corporation is likely to be classified as a corporate action that requires input from shareholders.

Outside the scope of any activity that is broadly considered to be a corporate action, individual corporations may specify other types of action that fall into this category, based on the directives contained in the Articles of Incorporation and other founding documents. While not necessarily a corporate action within the culture of all companies, events such as selling off a piece of property, closing a plant, or transferring key functions from one location of the company to another may be subject to review by the shareholders before the action takes place.

Essentially, a corporate action is any type of company initiated event that is likely to have some effect on the value of the investment made by the shareholders. To this end, many companies are structured in such a way that shareholders do have some degree of voice and vote in how or even if certain actions are in the best interests of all parties concerned. This system helps to establish a certain degree of checks and balances between shareholders, owners, and the executive team who actively runs the company.

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