A corporate action is an activity initiated by a company that affects the price and/or quantity of stock that you hold. Some actions may require a response from you while others may not. Although not exhaustive the following provides an example of the most common.
A company may decide its shares are too highly priced and they may decide to adjust the share capital by way of a share split. If they decide on a 2 for 1 split then the shareholder will simply double their holding and the share price will usually half. Overall the value of the shares will remain the same.
Similarly a company may decide the value of their shares is too low and they will consolidate the share capital by reducing the number of shares in issue. If they decide on a 2 for 1 consolidation the shareholder will halve their shareholding and the price per share will usually double. Again the value of the holding will remain the same.
The issue of new shares by a company to raise funds. It is referred to as a rights issue because a company issues a right to existing shareholders to buy the new shares before anyone else. They are normally offered in proportion to the clients holding. Usually issued in the form of nil paid shares to show the shareholders entitlement.
An Open Offer is another method used to raise funds by a Company. It is similar to a rights issue but with a few differences.
First, the entitlement to buy shares at a lower price in the market is non-renounceable, meaning that you cannot offer or sell the right to anyone else. You either take up the right yourself or choose not to. For this reason, when an open offer is announced, you will be allocated sub shares, not nil paid shares. Sub shares, due to the nature of an Open Offer, cannot be sold.
The second difference is that, although the ratio sets out your minimum entitlement, you are often able to apply for more than your entitlement. This is called an Excess Application. Shareholders advise how many shares they would like to take up including any excess that they would like to apply for and pay the funds for this amount.
Before the Open Offer is announced, the Company calculates how many shares it needs to issue to raise the required funds. After the applications are received it will announce the results and inform of any scaling back. This means limiting the number of shares each person can take up because more shares have been applied for than the Company wants to issue.