When a company’s stock price reaches a value considered high, it may choose to split it into two or more shares. Thus, it adjusts the price of its stock to a level that is accessible to investors with different profiles. With the split, the company increases the number of shares, but keeps the share capital unchanged. The shareholder then holds more shares at a lower price, while maintaining the financial value invested.
Benefits of stock splits and reverse stock splits:
- Increased liquidity;
- Attractive quotation - maintenance of stock price on the market at an attractive level for trading.
Regulatory steps to make a stock split
Call notice of EGM and management proposal
Issue a call notice of the EGM and management proposal fifteen (15) days before holding the EGM containing the following information:
- Split factor;
- Shareholding position date considered for the split;
- Date for share credit.
Holding the EGM
- The meeting deliberates the stock split under the conditions described in the call notice and the management proposal;
- The company should release the contents* of deliberations or the meeting’s minutes
* If the company chooses to release contents of deliberations on the date that it holds the EGM, it has to release the minutes up to seven days later.
- The split stock is now traded;
- The split shares are credited to the shareholders four days after the holding of the EGM.