What is a reverse stock split?

A reverse stock split is a corporate action taken by a company in order to decrease the number of outstanding shares of its stock. This is done by issuing a company fewer shares for each share held by its shareholders. For instance, with a 1-for-2 split, a shareholder would receive one new share in exchange for every two existing shares. This effectively reduces the number of shares outstanding, but the total value of the company’s stock remains the same. Reverse stock splits are most commonly done in Delaware due to the state’s corporate laws. Reverse stock splits in Delaware are usually done to increase the stock price, make the stock more attractive to investors, or even to delist the company from an exchange. For example, a company might conduct a reverse stock split to increase the price per share to meet the listing requirements of the stock exchange. In Delaware, a company must meet certain criteria before it is allowed to do a reverse stock split. Generally, a company must have the approval of its board of directors and a majority of its shareholders. The company’s shareholders must also receive access to material information about the reverse stock split, including the risks associated with it. Finally, the Delaware Court of Chancery must approve the proposed reverse stock split.

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What is a reverse stock split?

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