Corporate actions

A capital reorganisation involves a company making a significant change to its capital structure. This sometimes requires legal approval although often shareholder approval at a company general meeting is sufficient to make the change. Capital reorganisation can take many forms depending on what the company is doing.

A capital reorganisation issue is typically used to:

• Reduce the number of ordinary shares in circulation. For example, reducing the number of XYZ ordinary shares by 10%.
• Provide a mechanism that makes a capital payment to the shareholder (also referred to as a "return of capital" or "capital distribution"). For example, provide 10% of the value of the original shareholding to the investor as capital payment through purchase and cancellation of the B shares.
• Make a reduction in the company's market capitalisation.

Where a company has more than one class of shares in issue the reorganisation may only apply to a particular class. A key feature of a reorganisation is that the change to the share capital must be applicable to all the shareholders of the class of shares concerned. 

For capital gains purposes a share reorganisation is not treated as a disposal of the taxpayer's existing shares or an acquisition of any new shares. New shares issued are treated as though they were acquired at the same time as the existing shares.

Capital reorganisations are usually a mandatory type of corporate action where customers do not need to make an election with us. However, on occasion there may be an optional element. If this is the case, we will advise you of the details within the corporate action notification and give you the opportunity to make an election.

A distribution from a company is anything that the company gives to one of its shareholders without the shareholder giving full payment in return. 

The most common type of distribution is a dividend, a cash distribution of the company’s profits. The term cash distribution is a general term used to describe a distribution in the form of cash. Other than a dividend, this can take a number of other forms. For example, it might be a return of capital, where the company makes a payment to shareholders from its capital reserves.

In order to be eligible for the cash payment, you must have purchased your shares prior to the ex-entitlement date for the event.

Cash distributions are usually a mandatory type of corporate action which means you do not need to make an election with us. However, if there is an optional element, we will advise you of the details within the corporate action notification and give you the opportunity to make an election.

A consolidation is the process by which a company changes the structure of its share capital by reducing the number of shares it has in issue and increasing the value of each share. 

For instance, a company with 100,000 shares in issue having a nominal value of 10p might consolidate on a 1-for-10 basis, reducing the number of shares to 10,000 and changing the nominal value to £1. As a shareholder, the number of shares you own would be reduced, their nominal value would rise to compensate, and the market price of the shares should also rise to reflect the greater 'ownership' which each share represents in the company.

Share consolidations are often used as a means of making a share more attractive to institutional investors who consider penny shares too volatile. 

If a consolidation results in fractional shares, the fractional share is typically sold off either to the benefit of the company or as cash paid to the investor. For example, if you own 100 shares currently trading at 10 pence, a 1:3 consolidation would result in you receiving 33 shares with a re-adjusted value of 30 pence plus a fractional one third of a share. 

Consolidations are treated as a share reorganisation for capital gains tax purposes, with the base cost of the existing shares apportioned between the new shares. The new share issue is not treated as an acquisition and the loss/alteration of existing shares is not treated as a disposal.

A consolidation is the opposite of a stock split, in which the number of shares rises, and their nominal value and market price falls.

Consolidations are usually a mandatory type of corporate action where customers do not need to make an election with us. However, if there is an optional element, we will advise you of the details within the corporate action notification and give you the opportunity to make an election.

A mandatory conversion involves converting your shares into another type of share, bond, or other investment, which is issued by the same company.

For example, 'Illustration PLC' decides to terminate a depositary Receipt programme through which its shares are traded on a foreign exchange. If this goes ahead, the depositary receipts may be converted into 'Illustration PLC' ordinary shares. As it is mandatory, investor will not have the option to refuse the change. 

Sometimes a conversion will be optional. For instance, 'Illustration2 PLC' offers shareholders the opportunity to convert their existing shares into loan notes. Where the event is optional, we will advise you of the details within the corporate action notification and give you the opportunity to make an election.

A delisting occurs when a company’s shares cease trading on a particular exchange. 

This can occur for a variety of reasons, such as: the company could be going into liquidation, they may have failed to comply with the necessary stock exchange rules, or the company may have voted at a general meeting to cease being publicly listed and become a private company instead. The delisting may also be the result of another corporate action such as a takeover.

These events can also be exchange-specific. For example, a company might have a listing on the London Exchange and on the Australian Exchange, and then decide to cancel their Frankfurt listing but to continue trading in London. A company may do this if trading volumes on its secondary exchanges do not justify the listing fees. 

Often delisting from an exchange is followed by removal of the security from the Central Securities Depository of a country and cross border settlement to another country has to be arranged, which can temporarily affect a shareholder’s ability to trade.

A delisting is different from a suspension of trading which is a temporary measure.

A delisting is usually mandatory for shareholders, although there may on occasion be an optional element. For example, some companies which delist in order to become private companies will offer to purchase the shares from anyone whose shareholding is below a certain threshold.

Where there is an optional element to the event, we will advise you of the details within the corporate action notification and give you the opportunity to make an election.

A demerger involves a single company splitting into two or more different companies. 

When this occurs, shareholders may be issued with new shares in the new companies in exchange for their original shares. There are various reasons why a company may do this. For example, multinational corporations may want to set up new brands within other countries. 

If you hold shares in a company which announces a demerger, you shouldn’t be disadvantaged as the resulting market value of the new shares should equal the previous market value of the parent share.

The shares are issued under a specific ratio. Resulting shares are received under a new ISIN code and company name. Shareholders get to keep their existing ordinary shares and will receive new shares in the newly formed company.

Demergers are usually mandatory events but there have been occasions where there may be an optional element. For example, the opportunity to take cash instead of new shares. Where there is an optional element to the event, we will advise you of the details within the corporate action notification and give you the opportunity to make an election.

An exchange offer involves shareholders being given the opportunity to exchange their shares for another investment, such as loan notes or bonds.

Exchange offers are optional events. We will advise you of the details within the corporate action notification and give you the opportunity to make an election.

A warrant is an instrument which gives the holder the right to purchase an investment (usually ordinary shares) from the issuer at a set price within a certain timeframe. 

Warrants have an exercise price. This is the price which you must pay to convert a warrant into an ordinary share. Converting warrants into ordinary shares is known as exercising the warrants. Usually, one warrant can be exercised to give one ordinary share however there are some exceptions where you may need to exercise several warrants to receive one ordinary share.

Please read warrants for more information. 

When warrants are issued through another corporate action, we will usually include the terms of the warrant within the corporate action notification for the event. We will also include information about the procedure you need to follow to exercise those warrants.

Since many warrants provide a rolling-exercise period (they can be exercised at any date between the date of issue and the expiry date), it is not always possible to issue a corporate action notification and give you the opportunity to exercise online. If you do wish to exercise any warrants you hold and you are unable to do so online, please call us with your instructions.

A liquidation can also be known as a receivership, administration, bankruptcy or winding up.

These are all variations on the same theme and generally refer to the different legal mechanisms in which companies are either closed down or restructured. The exact meaning of each term and the processes involved depend on the location of the company concerned and applicable local laws.

Where a liquidation of a company occurs, this will usually mean a suspension or delisting of the company’s shares.

When a company goes into receivership, a receiver is appointed to take over the running of the company. It is the receiver's job to find the best way of recovering money owed to creditors. The company may be sold as a going concern or it may be forced to go into liquidation.

Liquidation means that the receiver will sell the company's assets and then distribute the proceeds to those who are owed money. There is a set order of priority for how the money will be distributed. The receiver will take their fee first with money owed to the government and banks being among the next to be paid. Shareholders generally come near the bottom of the list and there is often little or no money left for ordinary shareholders by the time all the other proceeds have been distributed.

This process can take several years. However, shareholders may eventually recover some of their investment. In the UK, if there is no money for shareholders, eventually the Inland Revenue will declare the company's shares as being of nil value. In this case, shareholders can usually use this as a capital loss to offset against other capital gains that may have been accrued. Shareholders often choose to speed this process up by asking their broker to donate their shares to charity.

It will usually be a mandatory event. However, on occasion there may be an optional element. Where this is the case, we will advise you of the details within the corporate action notification and give you the opportunity to make an election.

A name change is when a company has changed, or intends to change, its name. 

The name change itself does not affect the number of shares you hold or the value of the shares. However, companies will often perform a name change at the same time as other types of corporate action which could affect your investment.

An odd lot offer is a type of corporate action, popular in North America, which involves a company offering to buy shares from anyone holding a small number of shares in that company (typically less than 100). 

This can give small shareholders an opportunity to realise the value of their investment without suffering dealing charges which might otherwise make it impractical to sell their holding. It can reduce the number of shareholders on the company’s register and therefore reduce its administration costs.

Sometimes an odd lot offer will have a buy option. This allows customers to sell shares to buy shares if they wish to increase their shareholding instead of selling.

The price the shareholder will pay/receive is often not known at the point the shareholder chooses to participate.

A similar method that companies use to buy back stocks is called a Dutch auction. Shareholders who are interested in participating in the auction indicate a price range within which they would be willing to sell their shares back to the company. The company will buy back the shares from the lowest tendered offers, all at the same price. The price is the highest of the accepted offers.

Odd lot offers are optional events. We will advise you of the details within the corporate action notification and give you the opportunity to make an election.

An offer for subscription is similar to a eights issue or an open offer as shareholders are invited to subscribe for additional shares in a company, usually at a fixed price. 

However, unlike these two event types, no entitlement is credited to shareholders accounts in proportion to the number they currently hold. Instead, the terms of the offer are stated and shareholders may subscribe for however many shares they wish to apply for (subject to the terms of the offer).

Offer for subscriptions may be done in a variety of ways. Sometimes shareholders will have the option to subscribe for fixed parcels of additional shares. It may also be based on your holding on a particular date or you may have the option to subscribe for can be any number below a fixed limit. If the company receives applications for more shares than it is offering, they will scale back these applications accordingly. Conversely, the offer may be withdrawn if a minimum level of subscriptions are not received.

Subscription Prices

The subscription price is often stated at the time the offer is made. However, this is not always the case. Sometimes the price will be determined after all subscription elections have been received with reference to the market price on particular days.

In other subscription offers, shareholders will be able to bid for new shares via an auction facility. Due to this variability, it is very important that you study the information contained within the corporate action notification carefully before making your election.

An open offer (sometimes known as an entitlement issue) involves the creation and issue of new shares. These shares are made available to existing shareholders in proportion to the number they currently hold and at a set price – often at a discount to the current share price.

Companies may undertake open offers as a method of fundraising. 

For example, 'Illustration PLC' is seeking to raise £50 million. It gains approval for an open offer at the company AGM and offers shareholders the opportunity to purchase 1 new share for every share currently held at an offer price of £1.00.

The ex-entitlement date for the offer is 1st July 2022. They also state that an excess facility is available, this means that shareholders can subscribe to purchase new shares above and beyond their basic entitlement. The overall demand for the offer will determine the number of shares the customers will receive as excess facilities are usually scaled back on a pro rata basis.

To be eligible to receive these entitlements you must have purchased your existing shares prior to the ex-entitlement date for the event. In the example above, shareholders would be credited with 1 open offer entitlement for each existing share held.

Shareholder Options

Shareholders can elect to either exercise the entitlement (buy the new shares) or to allow them to lapse.

Unlike a typical UK rights issue, open offer entitlements cannot be traded and do not result in any lapsed rights payment to shareholders who don't take up their entitlement.

At the same time as we issue you with your open offer entitlements, we will issue you with a corporate action notification which will explain the terms of the offer and the actions you can take.

An optional dividend is when shareholders have the option to take a dividend in cash or in shares. The term is typically used outside the UK. 

Usually, the holder will receive cash unless they elect otherwise. Like any other dividend, you must have purchased your existing shares prior to the ex-entitlement date for the event to be eligible.

The conventions and classification of payments vary from country to country. However, please refer to our terms and conditions regarding SCRIP dividends as we typically only facilitate elections for the scrip alternative where we hold your shares with a UK based custodian and they are traded on the UK market. 

The way in which optional dividends are arranged is not always consistent and is liable to change. Therefore, please consult your corporate action notification carefully. 

Please note, we cannot provide tax advice and treatment will be dependent on your circumstance, so you may need to seek professional advice and/or refer to the specific company’s website or the HMRC. Also, please remember tax rules can change over time.

A redemption event means that some or all of an investor's fixed income security, such as a bond, is returned for cash.

These are usually mandatory events. For example, when a bond reaches maturity, it is has to be redeemed for its par value. 

However, sometimes a company may offer to redeem some of its bonds or shares early. Where this is the case, we will advise you of the details within the corporate action notification and give you the opportunity to make an election. Redemptions can sometimes be made at a premium price.

Please note, the term "redemption" can also be used to describe the standard selling of units in mutual funds at the choice of the investor. This is not a 'corporate action' and you would just need to buy the investment and receive a contract note in the same way as any other trade.

A reverse split involves to reducing the number of shares in issue and increasing the value of individual shares.

For example, 'Illustration PLC' undertakes a 1-for-10 Reverse Split. Each shareholder will then receive 1 new 'Illustration PLC' share in exchange for every 10 shares they previously held.

Ignoring any market-driven changes in the share price, the price of an individual 'Illustration PLC' share would increase ten-fold as a result of the reverse split. The overall value of your shares would stay the same.

Reverse splits are usually a mandatory type of corporate action where customers do not need to make an election with us. If there is an optional element, we will advise you of the details within the corporate action notification and give you the opportunity to make an election.

A rights issue is a method of raising funds undertaken by a company, often to pay off debt or finance acquisitions. It involves the creation and issue of new shares which are made available to existing shareholders at a set price, usually at a discount to the current share price. 

Shareholders are issued with nil-paid rights. The amount of rights they receive is proportionate to the number of ordinary shares they already own in the company. In order to be eligible to receive rights you must have purchased your existing shares prior to the ex-entitlement date for the event. 

What options do Shareholders have?

Shareholders have the following options dependant on their account type:

1. Sell some/all of the nil paid rights on the open market.
2. Take up some/all the rights. Acceptance will be forwarded to the registrar.
3. Sell some rights and use the proceeds to cover the cost of taking up the remainder.
4. Some rights issues, typically ones outside the UK, also offer an excess facility. This means that shareholders can subscribe to purchase new shares above and beyond their rights entitlement. This is usually subject to scaling back.
5. Allow the offer to lapse (default option) and possibly receive a lapsed rights payment.

How do I sell my nil-paid rights?

If you wish to sell, or buy additional rights, select ‘Trading’ from your main account page and ‘Trade Now’ from the dropdown menu. The ticker/symbol of the stock will be provided on the corporate action notification document.

Trading fees will apply to any trades placed.

The last day for trading rights may be different to the event deadline. If you sell them, you are no longer able to exercise them to receive new shares. However, if you buy rights, you may be able to exercise more than the initial allocation granted to you by exercising your new holding of rights.

A scheme of arrangement is a court-approved agreement between a company and its shareholders or creditors to execute a change in the structure of the company. 

Such schemes can take many different forms. We will advise you of the details of the scheme within the corporate action notification and give you the opportunity to make an election where applicable.

B/C Share Schemes

Some companies issue B or C shares to customers in lieu of a dividend payment. Shareholders are then able to make a specific choice as to what they wish to do with their B/C shares for tax planning purposes.

For example, Rolls Royce typically issue C shares instead of paying a dividend. These can then either be redeemed for cash, reinvested to receive new shares, or retained until the next opportunity to exercise the C shares comes around.

A share purchase plan is a type of offer for subscription where shareholders are invited to subscribe for additional shares in a company, usually, but not always, at a fixed price.

The subscription price is often stated at the time the offer is made. However, this is not always the case. Sometimes the price will be determined after all subscription elections have been received with reference to the market price on particular days.

Due to this variability, it is very important that you study the information contained within the corporate action notice carefully before making your election.

A spin-off involves a company separating off a part of its business into an entirely new business. Where this occurs, shareholders of the parent company receive shares in the new company. 

On occasion, shareholders (typically those holding a small number of shares) will be given the opportunity to redeem their entitlement to new shares for cash instead.

A spin-off is very similar to a 'demerger' which involves a single company splitting into two or more different companies. When this occurs shareholders may be issued with new shares in the new companies in exchange for their original shares. There are various reasons why a company may do this, for example Multinational corporations may want to set up new brands within other countries. 

If you hold share in a company and it announces a demerger or a spin-off, you should not be disadvantaged, as the resulting market value of the new shares should equal the previous market value of the parent share.

Spin-offs are usually a mandatory type of corporate action where customers do not need to make an election with us. However, if there is an optional element, we will advise you of the details within the corporate action notification and give you the opportunity to make an election.

A stock split involves subdividing shares to increase the number of shares in issue and decrease the nominal value of an individual share.

A stock split is also sometimes referred to as a "subdivision", "scrip issue," "bonus issue," "capitalisation issue" or "free issue."

For example, 'Illustration PLC' undertakes a 10-for-1 Stock Split. Each shareholder will then receive 9 additional 'Illustration PLC' shares in exchange for every 1 share held. Usually, the ticker of the new shares will stay the same.

Ignoring any market-driven changes in the share price, the price of an individual 'Illustration PLC' share would decrease proportionally (i.e. by a factor of ten in the above example) as a result of the stock split, but the overall value of the shares would stay the same.

Why do companies create stock splits?

Companies often use stock splits to lower the value of individual shares, making purchasing them more accessible for a wider range of investors. While a split in theory should have no effect on a share's price, it often therefore results in renewed investor interest, which can have a positive impact on the price. The opposite of a stock split is a reverse stock split where a company reduces the number of shares in circulation.

Corporate Action Event

Stock splits are usually a mandatory type of corporate action where customers do not need to make an election with us. However, if there is an optional element, we will advise you of the details within the corporate action notification and give you the opportunity to make an election.

Please note that international stock splits can take a few days to process and for the shares to become available on your account. Please consider this if your shares have not yet been credited to your account on the event date.

We cannot sell your international holding until the shares have been credited to your account.

A takeover involves an acquiring party bidding to purchase shares in a target company. 

Where this happens, the acquiring party makes an offer to purchase a set number of shares (often the entire number of shares available) held by existing shareholders. This is often at a fixed cash price or in return for shares/loan notes in the bidding party. It is then down to the shareholders individually to decide whether they wish to accept the offer or not.

Takeovers can happen for a variety of reasons. They can be welcome - where the boards of both companies are happy for the takeover to go ahead and recommend this to shareholders. They can also be hostile - where the board of the company subject to the bid do not feel it is in the best interests of the company to be taken over or they feel the company is being undervalued.

In the UK a takeover is automatically triggered when a single party owns 30% or more of a company as that party is forced to make an offer for all remaining shares. Shareholders will be contacted with the terms of the offer which may give options to receive cash and / or shares for their existing holding. This offer will have a time limit for acceptances.

If the bidder can obtain acceptances to acquire more than 50% of the company's shares, they can declare the bid 'unconditional'. The bidder can now take control of the company with a majority shareholding. Shareholders who have not yet accepted the offer will have a further opportunity to accept.

Once the acquiring company has obtained at least 90% of the shares it is offering to purchase and has gained acceptances of 90% of the voting rights held by those shares it is offering to buy, it can embark on a compulsory acquisition. This requires the remaining shareholders who haven't yet accepted the offer to sell their shares based on the same terms as everyone else who accepted.

Takeovers are voluntary events. We will advise you of the details of the offer within the corporate action notification and give you the opportunity to make an election.

A tender offer is an offer by a company or third party to shareholders to buy shares for cash. The purchase price is usually stated within the terms of the offer. This may be a fixed price or it may be a price calculated by the company's net asset value on a given date.

The number of shares that can be sold will vary. There may be a set number or you may be able to offer more shares. However, your offer may be scaled back depending on how many people have decided to participate.

As well as third parties offering to purchase shares, tender offers can sometimes be implemented by the company themselves. For instance, when a company agrees to delist and become a private company, some make an offer to buy back the shares of anyone with a small holding. This allows small shareholders to dispose of an asset which they will have difficulty selling in future. Companies can reduce the number of holders, thus reducing costs associated with communicating with shareholders.

Tender offers are voluntary events. We will advise you of the details of the offer within the corporate action notification and give you the opportunity to make an election.