Financial Definition of Stock Split
Meaning of Stock Split
Occurs when a firm issues new shares of stock but in turn lowers the current market price of its stock to a level that is proportionate to pre-split prices. For example, if IBM trades at $100 before a 2-for-1 split, after the split it will trade at $50 and holders of the stock will have twice as many shares than they had before the split. See: split.
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Stock Split in Historical Law
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Legal Abbreviations and Acronyms
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Stock Split Definition (in the Accounting Vocabulary)
The New York State Society of Certified Public Accountants offers the following definition of Stock Split in a way that is easy for anybody to understand: Increase in the number of shares of a company’s COMMON STOCK outstanding that result from the issuance of additional shares proportionally to existing stockholders without additional capital investment. The PAR VALUE of each share is reduced proportionally.
United States Tax Concept of Stock Split
There are two types of stock splits – forward splits and reverse splits. Forward splits increase the number of shares outstanding. For instance, in a Forward Split, if a stock splits 2-for-1, and you hold 1 share before the split, after the split you hold 2 shares worth one half the price per share. Reverse splits reduce the number of shares outstanding. In a Reverse Split just the opposite happens. If you hold 2 shares before the split, and the stock splits 1-for-2, after the split you hold 1 share worth twice the price per share.
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