Types
Corporate actions are classified as voluntary, mandatory and mandatory with choice corporate actions.
Mandatory Corporate Action: A mandatory corporate action is an event initiated by the corporation by the board of directors that affects all shareholders. Participation of shareholders is mandatory for these corporate actions. An example of a mandatory corporate action is cash dividend. All holders are entitled to receive the dividend payments, and a shareholder does not need to do anything to get the dividend. Other examples of mandatory corporate actions include stock splits, mergers, pre-refunding, return of capital, bonus issue, asset ID change, pari-passu and spinoffs. Strictly speaking the word mandatory is not appropriate because the share holder per se doesn't do anything. In all the cases cited above the shareholder is just a passive beneficiary of these actions. There is nothing the Share holder has to do or does in a Mandatory Corporate Action.
Voluntary Corporate Action: A voluntary corporate action is an action where the shareholders elect to participate in the action. A response is required by the corporation to process the action. An example of a voluntary corporate action is a tender offer. A corporation may request share holders to tender their shares at a pre-determined price. The shareholder may or may not participate in the tender offer. Shareholders send their responses to the corporation's agents, and the corporation will send the proceeds of the action to the shareholders who elect to participate.
Sometimes a voluntary corporate action may give the option of how to get the proceeds of the action. For example in case of a cash or stock dividend option, the shareholder can elect to take the proceeds of the dividend either as cash or additional shares of the corporation. (these are commonly known as Mandatory Events with Options, as a dividend is mandatory but a shareholder has the option to elect for the cash or to re-invest their cash dividend into the shares) Other types of Voluntary actions include rights issue, making buyback offers to the share holders while delisting the company from the stock exchange etc.
Mandatory with Choice Corporate Action: This corporate action is a mandatory corporate action where share holders are given a chance to choose among several options. An example is cash or stock dividend option with one of the options as default. Share holders may or may not submit their elections. In case a share holder does not submit the election, the default option will be applied.
Read more about this topic: Corporate Action
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