Corporate actions: A user's guide

As an investor, you keep an eye on the holdings in your portfolio. From time to time, you may notice that a company whose securities you own announces an event that changes its structure or its securities — for example, a name change, stock split or consolidation, or a merger or take-over offer.

These events are known as corporate actions. Some are mandatory, meaning they apply automatically to all securityholders, while others are voluntary, giving you the choice to participate or not.

This guide provides a high-level overview of how corporate actions work and what they might mean for you as a securityholder.

A corporate action is a formal event that affects a company or its securityholders. There are many types, but some of the most common examples include:

• Name changes — when a company formally changes its legal name
• Stock splits or reverse splits — when a company divides the existing shares of its stock into multiple new shares or consolidates them into fewer shares
• Dividends or distributions — when payments are made to securityholders, either in cash or in the form of additional shares
• Mergers and acquisitions — when companies merge or one company acquires part or all of another company

Mandatory corporate actions are decided by a company's board of directors and automatically affect all securityholders.

For example, if a company changes its name, it will issue a notice to investors. Once complete, the new name will appear in your investment account; no action is needed on your part.

Sometimes, securityholders are given a choice within a mandatory action. For example, when a company declares a dividend, you may be able to choose between receiving it in cash or additional shares.

This type of event is called a mandatory corporate action with options. If you don’t make a selection, the company’s default option will apply automatically.

Voluntary corporate actions — for example, a take-over bid, issuer bid or share exchange offer — give you the option to participate. Each shareholder can decide whether or not to take part.

Choosing to participate is called making an election. If you wish to do so, you’ll need to let us know before the stated deadline, usually a few business days before the action’s effective or expiry date.

Even if you don’t participate, your holdings could still be affected. For instance, if a take-over bid succeeds and the bidder acquires a large majority of shares — typically 90% or more — the remaining shareholders may be “squeezed out” under corporate legislation. In practical terms, this means those shareholders are required to sell their shares to the bidder, usually at the same price offered in the take-over.