If you are seeking to change the value of your shares without diluting or increasing shareholder control, a share split is a great way to do it. But what are they, and how do they work? Continue to find out what you need to know about share splits.
What is it?
A share split is when shares are split to increase the quantity of shares that a company has outstanding. This results in pre-existing shareholders being issued with new shares in relation to the current proportion that they own. Importantly, this does not increase the total market captilisation of the company or total share value. Share splitting is like changing a $20 note into 2 $10 notes, there is no increase in value, just the amount of notes, or in our case, shares.
Why would I share split?
The chief reason that you would undergo a share split is to reduce the value of your shares. You may want to reduce the value of your shares because your company’s share price is too high, prohibiting individuals from buying shares in your company. Or maybe you wish to increase the liquidity of your shares and allow shareholders to buy/sell your shares more easily. A share split may also be used to display that your company’s share price is increasing, and thus your company is performing well, to your shareholders and investors.
Is the reverse possible?
A reverse share split, known as market consolidation, is also possible. It reduces the amount of shares, by increasing the market value of each individual share. Simply put, if your shares are currently worth $10, and you have a 2:1 reverse share split, your company will have half the amount of shares but each share will be worth $20. Companies may perform it a reverse share split to increase the value of their share price to increase the perceived ‘performance’ of the company.
How do I do it?
There are several things you need to do in order to perform a share split. Firstly, you need to have shareholder approval, either through a unanimous circular motion or through approval at a general meeting. You have to specify the amount of current shares, amount of future shares and the split calculation. You also need to provide new share certificates to your shareholders. The final step is to inform ASIC about your share changes. Once you register your company with us, you can make changes including share splits here.
Conclusion
Now you know about how to do a share split and the benefits of doing so. If you are unsure about anything, get in touch with a company lawyer to give yourself peace of mind.
Want to know more about share splits? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest legal marketplace.
