Corporate action

A corporate action is something the company does to the shares or debentures already in investors' hands. Not a trade between two investors: an event the board approves and the shareholders authorise, which then has to reach every single holder on the register.

That last part is the registrar's job, and it is why this term sits in an RTA syllabus at all. The company declares. The RTA works out who is entitled, how much, and where the money or the shares go.

The common corporate actions are payment of dividend, buyback of shares, bonus issue, stock split and consolidation, rights issue, and mergers and acquisitions.

For each of these the RTA has a defined set of duties:

1. Determining the beneficiaries of the corporate action, based on the book closure and record date.
2. Transfer of dividend through NEFT or RTGS, and dispatch of payment instruments where bank details are not available.
3. Credit of new shares to the investor's demat account in the case of a stock split or bonus.
4. Reconciliation of funds with the bankers in the case of a rights issue.
5. Assistance to the company in finalising allotment and post-allotment activities — crediting shares to demat accounts and refunding excess money.

Where the securities are dematerialised, the depository is the registered owner and holds its own record of beneficial owners. It supplies the RTA with the beneficial-owner details as of the record date or book closure, which is the list the corporate action is actually run against.

A company has 5 crore shares of face value Rs 10. Mrs Iyer holds 1,000 of them. In one year the board puts through three corporate actions.

1. Dividend of 40 percent. 40% × Rs 10 = Rs 4 per share, so the company pays out 5 crore × Rs 4 = Rs 20 crore. The RTA freezes the register at the record date and credits Mrs Iyer Rs 4,000 by NEFT to her registered bank account.

2. Bonus issue of 1:2. One new share for every two held. The company issues 2.5 crore shares, taking the count to 7.5 crore. Mrs Iyer receives 500 bonus shares, credited by the RTA to her demat account — she now holds 1,500 shares, still of Rs 10 face value.

3. Stock split, Rs 10 into Rs 2. Each share becomes five. Outstanding shares go to 37.5 crore; Mrs Iyer holds 7,500 shares of face value Rs 2.

At every stage the value of her holding is unchanged by the bonus and the split — only the dividend put Rs 4,000 of new money in her hands. What changed three times is the register, and each rewrite was the RTA's work.

Chapter 2 (Characteristic of Equities) defines corporate actions and works through dividend, buyback, bonus, split and consolidation with numbers. Chapter 6 (Basics of Registrars and Transfer Agents) then lists the RTA's five duties in a corporate action verbatim, and the chapter's sample questions test both directions: "which of the following is an example of a corporate action" and "which of these is NOT". The reliable distractor is a purchase or sale of shares or units by an investor — a market transaction, not a corporate action.

• An investor buying or selling is not a corporate action. The company must be the one initiating it. This is the sample question in Chapter 6.
• Bonus and split are not the same thing. A bonus issues new shares out of accumulated profit and leaves face value alone; a split cuts face value and leaves reserves alone.
• Entitlement follows the record date and book closure, not the date the investor happens to ask. The RTA runs the action against the register as it stood on that date.
• In demat, the depository is the registered owner and supplies beneficial-owner data to the RTA. In physical form, registered owner and beneficial owner are the same person.
• Participation in a buyback and in a rights issue is voluntary; a dividend, bonus or split reaches every holder automatically.
• A buyback extinguishes the shares acquired and reduces share capital — it does not park them for reissue.