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Reverse stock split
Also called: reverse split, share consolidation, stock consolidation
Combining existing shares into fewer, higher-priced ones, for example 1-for-10, usually to lift the share price back above an exchange minimum.
Explanation
In a 1-for-10 reverse split, every 10 shares become one and the price is multiplied by 10. Nothing about the company changes at that moment: a holder of 1,000 shares at $0.50 ends up with 100 shares at about $5.00. Fractional shares are usually paid out in cash or rounded up.
Most reverse splits by small companies aim to cure a bid-price deficiency. They require a charter amendment, usually approved by shareholders (often as a range, such as 1-for-5 to 1-for-50, left to the board), and are reported on 8-K Items 5.03 and 3.03.
History is not kind to these splits. Shares of struggling companies often keep falling afterwards, because the problems that pushed the price down remain and a higher price makes it easier to sell new stock. If authorized shares are not cut in proportion, the split also frees room to issue far more of them.
Why it matters
A reverse split resets the share price, not the business. For a cash-burning company it usually clears the way for the next offering, and repeated splits are a hallmark of death-spiral dilution.
How Equity Dictionary measures it
Split events restate share counts filed before each split, so dilution rates are comparable across them (a 1-for-12 split multiplies earlier counts by 1/12). For listing compliance, one reverse split in 24 months scores 60 and two or more score 90. Splits appear as markers on the charts, and the Dilution wire tracks reverse-split filings.
Related terms
- Minimum bid price deficiency: The notice an exchange sends when a stock has closed below $1.00 for 30 consecutive business days, starting a deadline to get back above it.
- Authorized shares: The maximum number of shares a company’s charter allows it to issue; issuing more requires shareholders to approve a charter amendment.
- Toxic financing: Convertible securities whose conversion price floats with the market, so the lower the stock falls, the more shares the holder receives.
- Delisting notice (8-K Item 3.01): An 8-K under Item 3.01, filed within four business days when a company learns it no longer meets an exchange’s listing rules, faces delisting or is moving its listing.
- Dilution: The shrinking of each existing shareholder’s ownership stake when a company issues new shares.
Plain-English summary for research; not legal or investment advice.