Corporate Action Processing
What is a Corporate Action?
A corporate action is any action taken within a corporation that affects the status of the shares held by the
shareholders. It can effect the number of shares held by a shareholder or it may effect the rights to which the
shareholders are entitled, or both. Corporate actions can take many forms. Some common forms of corporate
actions are reverse and forward splits, distributions based on shares already held, reorganizations, mergers, spin-offs
and acquisitions. In each of these cases, the Financial Industry Regulatory Authority, FINRA, must be involved for
approval of the action to take place in the public market.
Corporate actions can be decided by the Board of Directors of the corporation or by a majority vote from the
shareholders, depending on the type of corporate action sought and the laws of the state in which the corporation is
domiciled. An attorney is usually involved with this process and the transfer agent must be kept informed of
decisions made. Once the corporate action has been decided internally, accompanying amendments must be filed
with the state of incorporation. Upon receipt of the filed documents from the state, the CUSIP Service Bureau may
need to be informed in order to assign a new number reflecting a change in action. Either the corporate attorney or
the transfer agent may apply to CUSIP for the new number. FINRA must then be contacted directly. This initial
contact with FINRA must be made by the corporate attorney or corporate officers. A secondary contact may be
made with FINRA by the transfer agent only after the initial contact. The transfer agent will then send a Transfer
Agent Verification Form to FINRA that includes pertinent information to ensure the corporate action flows
smoothly in the public market. FINRA and the Depository Trust and Clearing Corporation then place the
announcement into the public trading system so that all brokerages and banks will see the record dates, the effective
and payable dates, any applicable new CUSIP numbers and other appropriate data necessary for the proper
settlement of trades.
Name Changes
Name changes usually occur as a result of a change in the corporation’s direction, officers or management team.
Each name change must be submitted to the CUSIP Service Bureau along with a copy of a Certificate of
Amendment or other appropriate document that has been filed with the state of incorporation that validates the state
has a record of the name change. After CUSIP receives your supporting documents and application, it will assign
the corporation a new alphanumeric CUSIP number that reflects the new name. The corporation is then ready to
contact FINRA.
Reverse Splits
Reverse splits cause the price of each share in the market to rise in direct proportion to the decrease in the number of
shares outstanding. The corporation decides the set ratio for the split. Each reverse split must be submitted to the
CUSIP Service Bureau along with a copy of a Certificate of Amendment or other appropriate document that has
been filed with the state of incorporation that validates the state has a record of the reverse split. The new CUSIP
application for either a reverse split or a name change or both can often be done at the same time. After CUSIP
receives the corporate supporting documents and application, it will assign the corporation a new alphanumeric
CUSIP number that reflects the reverse split and/or new name. The corporation is then ready to contact FINRA.
Forward Splits and Distributions
Forward splits and distributions rarely require a new CUSIP number since there is no decrease in the number of
shares outstanding. However, each action may be slightly different. For this reason it is prudent to contact the
CUSIP Service Bureau and allow the agency to tell the corporation whether or not a new number is needed.
Reorganizations
Reorganization (merger, acquisition, consolidation, spin-off, etc.) occurs when a corporation needs to change its
internal structure in some manner, in order to become more cost effective and survive. Bankruptcy proceedings
often require the corporation to reorganize. This restructuring can involve changing the articles of incorporation,
changing the management structure or the pattern of ownership. It can downsize and/or combine whole departments
and include employee lay-offs. It can also include restating the assets to reflect current market value, restructuring
the liabilities and equity to display an overall lower asset value and renegotiating debt obligations. When a
reorganized corporation’s shares are presented for processing at the brokerage, depository and transfer agent level it
references the restructuring of the capitalization only – an exchange of shares and share values, the old with the new.
Any type of reorganization must be approved by FINRA before it becomes effective in the public market. After the
corporate change is filed with the chosen state of incorporation (and this often changes with a reorganization) a new
CUSIP is required first and then FINRA will need to be notified directly by the corporation. The transfer agent will
follow up with FINRA and file their Transfer Agent Verification Form after the initial corporate contact has been
made.
Contact us as soon as your corporation has decided on a specific corporate action. We can lead
you through the complexity so that the action results in a smooth transition in the public market!
