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Reverse Split
Many companies trading on the OTCBB or Pink Sheets have used reverse stock splits. This financial strategy is implemented to help a company improve stock prices, enter new markets, avoid government regulations and attract investors. Does this strategy succeed and deliver the results many companies seek? If your company is pursuing similar goals, a reverse stock split may be in your company's future or does the company have other options? Consider the effect many reverse stock splits have on their companies. This in-depth 20-page analysis provides insight on how reverse splits have been structured in the past, in which scenarios they work, and which ones they do not, as well as a case study of five companies from the sample set. [Excerpt from the paper] A reverse stock split is defined by the SEC as a transaction that reduces the number of shares of company stock outstanding while simultaneously increasing the share price proportionately so that the value of each shareholder’s ownership remains constant. For example, if investor A owns 20,000 shares of a company at $1/share and the company executes a one for twenty reverse stock split, investor A subsequently owns 1000 shares at $20/share. Thus, the aggregate value of his ownership remains constant at $20,000 while the number of shares owned is divided by 20. A reverse stock split may be declared by a company’s board of directors without shareholder approval. Traditionally, however, the board will state their request and wait for shareholder approval before executing the reverse stock split. The SEC does not have jurisdiction over reverse stock splits. They are governed primarily by state corporate law and by a company’s articles of incorporation and by-laws. Companies required to file reports with the SEC may notify shareholders of the reverse split on Forms 8-K (current reports), 10-Q (quarterly reports), and 10-K (annual reports). Because the company’s market capitalization remains unchanged, companies are not required to record the split for accounting purposes. Want to know more? Download the White Paper "Reverse Split" for just $89.95. |
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