What is a reverse stock split?

A reverse stock split is a corporate action where a company reduces the total number of its outstanding shares. This process leads to a higher stock price, as each share now has a higher value. The number of outstanding shares for a company is reduced by a ratio that is declared by the company. For example, a 1-for-2 reverse stock split would mean that two shares of the company’s stock would be exchanged for one new share. In South Carolina, reverse stock splits may occur if the company’s shares are trading at a low price, reducing its market capitalization. The low price of the stock may be caused by a lack of investor interest, or it may be a sign of financial distress. Companies may also initiate a reverse split if they feel that the lower price of the stock is a determent to its reputation. Regardless of the reason, reverse stock splits are permitted under the South Carolina Business Corporation Act and must be declared by the company’s board of directors. The board must also set a ratio for the split, which will determine how many original shares of the company will be exchanged for one new share. Companies must also alert shareholders about the split by sending out a notice and a proposal for the split. Shareholders must then be given an opportunity to cast their vote on the proposal.

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What is a reverse stock split?

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