What is consolidation of shares?

What is consolidation of shares?

Consolidation of shares, also known as a reverse stock split, is a corporate action where a company reduces the number of its outstanding shares by combining them and increasing the face value of each share. This process is also referred to as a reverse stock split. Shareholders are usually notified of this change via email before the consolidation occurs.

Example Scenario

Let's consider Mr. A, who holds 10,000 shares valued at ₹10 each. If the company decides to consolidate its shares in a ratio of 1:5, it means that for every 5 shares Mr. A owns, he will receive 1 new share. Therefore, his 10,000 shares will be reduced to 2,000 shares. Although the number of shares decreases, the total value of his holdings remains the same.

  • Value of holdings before consolidation: 10,000 shares × ₹10 each = ₹1,00,000
  • Value of holdings after consolidation: 2,000 shares × ₹50 each = ₹1,00,000

In some cases, the consolidation may result in shareholders owning fractional shares, which are portions of a share that are less than one full share. Since fractional shares do not trade in markets, the company appoints a trustee to buy them back from the shareholders. The proceeds from these sales are then credited to the shareholders' primary bank accounts.


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