Reverse/Forward Stock Split
A reverse/forward stock split is a stock split strategy used by companies to eliminate shareholders that hold fewer than a specified number of shares. A reverse/forward stock split is a stock split strategy used by companies to eliminate shareholders that hold fewer than a specified number of shares. A reverse/forward stock split uses a reverse stock split followed by a forward stock split. In a reverse/forward stock split, shareholders with less than the specified amount of stock are cashed out and the remaining shareholders are recapitalized. A reverse/forward stock split is a strategy used by companies to eliminate shareholders with less than a specified number of shares.
What Is a Reverse/Forward Stock Split?
A reverse/forward stock split is a stock split strategy used by companies to eliminate shareholders that hold fewer than a specified number of shares. A reverse/forward stock split uses a reverse stock split followed by a forward stock split.
How a Reverse/Forward Stock Split Works
A reverse split reduces the overall number of shares a shareholder owns, causing some shareholders who hold less than the minimum required by the split to be cashed out. The forward stock split increases the overall number of shares a shareholder owns. A reverse/forward stock split is usually used by companies to cash out shareholders who hold less than a specified amount of shares.
This strategy is believed to cut administrative costs by reducing the number of shareholders who require mailed proxies and other documents.
Example of a Reverse/Forward Stock Split
For example, if a company declares a reverse/forward stock split, it may start by exchanging one share for every 100 shares that the investor holds. Investors with less than 100 shares would not be able to complete the split and would, therefore, be cashed out. Then, the company would do a forward stock split of 100 shares for one share. This would effectively bring shareholders that were not cashed out to their original number of shares.
At the end of this process, the total number of shareholders would be reduced. All shareholders who started the process with less than 100 shares, and were cashed out, are no longer be shareholders at the end of the process.
Related terms:
Corporate Action
A corporate action is any event, usually approved by the firm's board of directors, that brings material change to a company and affects its stakeholders. read more
Employee Stock Option (ESO Calculation)
An employee stock option (ESO) is a grant to an employee giving the right to buy a certain number of shares in the company's stock for a set price. read more
Odd Lot
An odd lot is an order amount for a security that is less than the normal unit of trading for that particular asset. read more
Pro Rata (Proportionate Allocation)
Pro rata is the term used to describe a proportionate allocation. It is a method of assigning an amount to a fraction according to its share of the whole. read more
Proxy
If you are unable to attend your company's annual general meeting, consider using a proxy to represent you. read more
Reverse Stock Split
A reverse stock split consolidates the number of existing shares of corporate stock into fewer, proportionally more valuable, shares. read more
Stock Dividend
A stock dividend, sometimes called a scrip dividend, is a reward to shareholders that is paid in additional shares rather than cash. read more
Stock Split
A stock split is when a company divides the existing shares of its stock into multiple new shares to boost the stock's liquidity. read more