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 certain number of shares of that company's stock. A reverse/forward stock split uses a reverse stock split followed by a forward stock split. The 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 with a less-than-certain amount of shares. This is believed to cut administrative costs by reducing the number of shareholders who require mailed proxies and other documents.

BREAKING DOWN 'Reverse/Forward Stock Split'

For example, if a company declares a reverse/forward stock split, it could start by exchanging one share for 100 shares that the investor holds. Investors with fewer than 100 shares would not be able to do the split and would, therefore, be cashed out. The company would then do a forward stock split for 100 for 1, which will bring shareholders that were not cashed out to their original number of shares. This would reduce the overall number of shareholders, as shareholders who started the process with less than 100 shares and were cashed out would no longer be shareholders at the end of the process. They do not get shares back during the forward split since they have already been cashed out.

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RELATED FAQS
  1. Why do companies use reverse/forward stock splits?

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  2. Understand the What and Why of Stock Splits

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  3. Why would a company perform a reverse stock split?

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  4. How Does a Stock Split Affect Cash Dividends?

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  5. What Is a Split-Adjusted Share Price?

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