What is a reverse split in stocks?
A reverse stock split is a combining of existing shares into some smaller number of shares. In a one-for-10 reverse stock split, then, each 10 shares outstanding is converted into one share.Stock DistributionsA company’s board of directors declares any stock distribution, split or dividend. Generally, forward distributions are declared to reduce the trading price of stock to make it more liquid. A reverse stock split has the opposite effect–it increases the trading price of the stock proportionately to the split.Motives for Reverse SplitThe simplest motive for a reverse split is to increase the trading price of the stock to attract a different type of investor or to maintain a listing on an exchange. However, a reverse stock split may also be used as a vehicle for reducing the number of stockholders, effectively taking it private.Going Private MechanismIn the United States, when the number of stockholders falls below 300, the company is no longer required to file financial statements
