NISM Series XV · Chapter 9
Corporate Actions
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Corporate actions are decisions outside day-to-day business that directly affect shareholders: dividends, rights and bonus issues, splits and consolidations, mergers and demergers, schemes of arrangement, loan restructuring, buybacks, delisting and share swaps. Questions test definitions and simple calculations of entitlements and post-action prices. Where the workbook cites older regulations, the lesson notes the newer ones.
1Why corporate actions matter
Corporate actions include distributing surplus as dividends, changing capital through new issues or buybacks, M&A, restructuring, delisting and raising debt. In a listed company, minority shareholders' interests must be protected. Actions are governed by the Companies Act, 2013, SEBI regulations and the listing agreement (now SEBI's LODR Regulations), including notices to regulators and stakeholders and disclosures.
Benefits go to shareholders on the register of members (physical shares) or the depository's register of beneficial owners (demat shares) on the record date or during the book closure period.
Remember
- Record date decides who gets the benefit.
2Dividends
Profits can be retained or returned. Paying shareholders in equal proportion is declaring a dividend. The split depends on reinvestment opportunities, management, shareholder expectations and available cash. Companies may pay interim dividends during the year and a final dividend after it, and must pay within 30 days of declaration.
SEBI requires listed companies to declare dividends in rupees per share, not as a percentage of face value. 50% on a ₹2 share is ₹1, but on a ₹10 share it is ₹5; companies now state "₹1 per share" and "₹5 per share".
Payout ratio = DPS ÷ EPS. Dividends are now taxable in shareholders' hands (companies no longer pay dividend distribution tax from AY 2021-22), and companies deduct 10% TDS under Section 194 above a threshold (₹5,000 in the workbook; the limit has since been raised, so check the current figure).
Remember
- Pay within 30 days; declare in ₹ per share.
3Rights issues
Issuing shares to new investors dilutes existing holders (doubling shares halves their stake), so the Companies Act requires further issues to be offered first to existing shareholders: a rights issue. Shareholders may subscribe, let the right lapse, or renounce it to someone else, for payment or free; rights entitlements trade on exchanges for a set period. Rights are usually priced at a discount to market (otherwise investors would buy in the market).
Example 10 shares at ₹100; a 1-for-2 rights issue at ₹70 lets the holder buy 5 more shares at ₹70. Companies often allow applications for additional shares left by others.
Rules: a record date; a letter of offer (draft filed with SEBI) stating the purpose; an abridged letter sent at least three days before opening; applications allowed on plain paper; open for 15 to 30 days. Shares outstanding and cash both rise. Holders who take up their full rights keep the same percentage ownership.
Remember
- Rights: open 15–30 days; can be renounced; usually at a discount.
4Bonus issues
A bonus issue (stock dividend) gives free shares, transferring free reserves to share capital (capitalisation of reserves). It has no economic effect: per-share figures (EPS, book value, price) fall, but each holder's proportion and total value stay the same; the effect is psychological.
- Ratio 1:3 = one bonus share for every three held.
- Must come from free reserves built from genuine profits, not revaluation reserves.
- Not allowed if the company has defaulted on interest or principal of debt securities or fixed deposits.
Example 100 shares at ₹1,000 (₹1,00,000). After a 1:1 bonus, 200 shares at about ₹500, still about ₹1,00,000; the actual price depends on the market.
Remember
- Bonus from free reserves, not revaluation reserves.
5Stock splits
A split reduces face value and increases the number of shares in the same ratio; share capital is unchanged. A 1:5 split turns 100 shares of ₹10 into 500 of ₹2. Companies split when a high share price deters investors; a lower price improves liquidity. Like a bonus, it is a book entry with no economic benefit: per-share data fall, ownership and value are unchanged.
Example SBI split its ₹10 shares into ₹1 shares. A share at about ₹2,700 traded at about ₹295 afterwards, so one share worth ₹2,700 became 10 shares worth about ₹2,950; the post-split price depends on the market.
Remember
- Split: face value down, shares up, capital unchanged.
6Share consolidation
Consolidation is the reverse: face value goes up and shares go down in the same ratio, leaving capital unchanged. A 5:1 consolidation turns 500 shares of ₹2 into 100 shares of ₹10. Companies do this when a very low share price hurts perception. Per-share figures rise, but there is no economic gain.
Example 500 shares at ₹5 (₹2,500) become 100 shares at about ₹25 (still about ₹2,500).
Remember
- Consolidation: face value up, shares down.
7Mergers and acquisitions
- Merger: the target is absorbed into the acquirer and ceases to exist; its assets and liabilities pass to the acquirer.
- Acquisition (takeover): the acquirer buys all or a substantial part of the target's shares; both usually continue to exist.
- Consolidation (amalgamation): companies combine into a new company, and the old ones cease to exist.
Motives: synergy (economies of scale, forward and backward integration, wider markets), higher revenue and market share, diversification by geography or business, and tax (a profitable firm can use a loss-maker's losses as a tax shield).
Substantial acquisitions of shares or voting rights trigger SEBI's takeover regulations, which give public shareholders a chance to exit through an open offer. (The workbook cites the SAST Regulations, 1997; they were replaced by the SAST Regulations, 2011.)
Remember
- Merger: target disappears. Acquisition: both survive. Consolidation: new company.
8Demergers and spin-offs
A spin-off (demerger) carves out one or more businesses into a separate company. Shareholders on the record date get shares in the new company in proportion to their holdings.
Example In April 2018, Adani Enterprises spun off its renewable business as Adani Green Energy, giving 761 shares for every 1,000 held. In 2015 it had spun off its ports and power transmission businesses.
Remember
- Spin-off: shareholders get new-company shares pro rata.
9Schemes of arrangement
When a company cannot meet obligations to creditors or a class of shareholders (for example, redeeming preference shares), it may agree a scheme of arrangement: a court-supervised settlement, often reorganising share capital (shareholders giving up part of their stake to creditors, or merging or dividing share classes). Under Section 230 of the Companies Act, 2013, the company, its creditors or members apply to the NCLT, which orders meetings to reach a compromise. The term covers all restructurings, including M&A, not just distress.
Remember
- Section 230; approval through the NCLT.
10Loan restructuring
Distressed companies can restructure debt by changing the amount, interest rate, repayment mode (cash and/or equity) or tenure so repayment fits their capacity. It helps both sides: the borrower avoids being declared a defaulter and can rebuild; the lender recovers something instead of writing off a bad debt. The process: analyse the debt, meet lenders, share current and projected finances, and present a workable business plan and repayment schedule.
Remember
- Restructuring benefits borrower and lender.
11Share buybacks
Excess cash can fund growth, repay debt or go to shareholders, either uniformly as dividends or by letting shareholders choose to sell shares back (a buyback), which raises EPS and book value per share for those remaining.
Motives: support an undervalued price; excess cash with few investment opportunities; build confidence; defend against takeovers; increase leverage; offset ESOP dilution of promoters. True intentions are hard to judge.
Rules: buybacks only from reserves and surplus (as the workbook states); bought-back shares are extinguished, cutting share capital; not allowed after defaults on interest or principal of debentures, deposits or loans, preference redemption or declared dividends. Routes: tender offer to existing holders pro rata, open market (book building or through the exchange), or from odd-lot holders. A special resolution sets the time frame and maximum price.
With fewer shares and the same profit, EPS rises, dividends per share may rise, and the price per share tends to go up.
Remember
- Buyback: fewer shares → higher EPS.
12Delisting and relisting
Delisting permanently removes shares from an exchange.
- Compulsory: for non-compliance with regulations or listing terms.
- Voluntary: the company chooses to go private (to reduce reporting burden, after M&A, or for strategic freedom), following SEBI's rules.
Promoters must give all shareholders an exit through reverse book building: promoters set a floor price, shareholders bid the price at which they will sell, and promoters accept, reject (cancelling the delisting) or counter-offer. Delisting succeeds only if the promoter holding reaches 90%, and (per the workbook) at least 25% of public shareholders take part. Remaining public holders can sell to the promoters at the exit price for one year. No minority shareholder can be forced to exit.
Relisting (under the 2009 Delisting Regulations cited in the workbook): after five years for voluntary delisting and ten years for compulsory delisting. (These regulations were replaced by the SEBI Delisting Regulations, 2021; check current rules.)
Remember
- Delisting needs 90% promoter holding; exit window one year.
- Relist after 5 years (voluntary) or 10 years (compulsory).
13Share swaps
A share swap exchanges one set of shares for another, usually in M&A when the acquirer pays with its own shares instead of cash. Target shareholders receive a set number of acquirer shares, based on a swap ratio worked out from fair valuations of both companies.
Remember
- Swap ratio depends on valuing both companies.
Original summary written by Integrato Digital to complement the official NISM workbook (February 2026 version). Read the workbook for the full text.