Stock consolidation

Reverse split - consolidation of shares, reducing the number of outstanding shares by their proportional merger. Moreover, the total nominal value of shares and the size of the authorized capital are not changed. The purpose of the operation is the forced increase in the price of one share. It is made by decision of the general meeting of shareholders. The relevant changes are made to the charter of the company regarding the face value and the number of shares placed and declared in the company of the corresponding category (type).

Unlike stock split (split), consolidation is not so common. An increase in the price of shares may become necessary in the following circumstances:

• Exchange listing procedures provide for a minimum share price. For example, NASDAQ sets the minimum price of one share at 1 US dollar . If the share price falls below, the exchange sends a warning to the issuer demanding to increase the share price in the allotted time.
• The investment declarations of many investment funds contain requirements - to buy and hold shares worth more, for example, $ 10.

Reverse split is a non-market way to increase stock prices. It is resorted to if it is not possible to quickly increase the price by exchange methods or if these methods turn out to be much more expensive than the procedure for re-registering a share issue .

Example: If a company had 2 million shares in circulation and consolidation is carried out in a one to two ratio, then after a reverse split, the company will have 1 million shares. For each owner, the number of shares will be halved (there were 200 shares becoming 100). The nominal value of shares will increase by 2 times. The market capitalization of the company and the percentage of shareholders in the company remain unchanged.