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Reverse Stock Split

A reverse stock split is defined by the SEC as a transaction that reduces the number of shares of company stock outstanding while simultaneously increasing the share price proportionately so that the value of each shareholder’s ownership remains constant.

A reverse stock split may be declared by a company’s board of directors without shareholder approval. Traditionally, however, the board will state their request and wait for shareholder approval before executing the reverse stock split.

The SEC does not have jurisdiction over reverse stock splits. They are governed primarily by state corporate law and by a company’s articles of incorporation and bylaws.rn

Additional Comments:

For example, if investor A owns 20,000 shares of a company at $1/share and the company executes a one for twenty reverse stock split, investor A subsequently owns 1000 shares at $20/share. Thus, the aggregate value of his ownership remains constant at $20,000 while the number of shares owned is divided by 20.

Related Terms:

Share Split
Increasing a companies shares outstanding by splitting the par value of existing shares and distributing additional ...

Stock Split
A stock split is when there is an increase in the number of outstanding shares without ...

Alternative Public Offering
(APO) Somewhat misleading term used to refer to the variety of methods of going public other ...

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