SIE (Training Consultants v3.5, 2025): Ch. 1 Equity Securities, Sec. 4 - Stock Splits

Stock Split

An increase in the number of outstanding shares of a corporation without changing the total market capitalization; reduces the stock’s market price and par value proportionately.

Purpose of Stock Split

To increase marketability of a stock by reducing its market price.

Reverse Stock Split

Also called stock consolidation; decreases the number of outstanding shares and increases the market price per share.

Par Value Adjustment

In a stock split, the par value decreases proportionately; in a reverse split, the par value increases proportionately.

Shareholder Approval

Outstanding common shareholders must vote to approve stock splits.

Capitalization

The total market value of a corporation’s outstanding shares; does not change during a stock split.

Transfer Agent

Maintains records of shareholders entitled or not entitled to stock splits or stock dividends. #

What is a stock split?

What is the primary purpose of a stock split?

To increase marketability of the stock by lowering its market price.

Do shareholders receive new certificates after a stock split?

Yes, investors receive new certificates for the additional shares.

How does a stock split affect par value?

The par value decreases proportionately to the split.

Do stock splits change a corporation’s capitalization?

No, capitalization remains the same.

What is a reverse stock split?

A decrease in the number of outstanding shares, increasing the market price per share; also called stock consolidation.

How does a reverse split affect par value?

Par value increases proportionately.

Can a reverse split indicate problems with a company?

Yes, it can be a sign of trouble.

Who must approve a stock split?

Outstanding common shareholders.

What role does the transfer agent play during a stock split?

Maintains records of shareholders entitled or not entitled to the split or dividend.