Sunset Island Group Inc (SIGO)

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Reverse Stock Split

What is a reverse stock split?

A reverse stock split reduces the number of shares and increases the share price proportionately. For example, if you own 10,000 shares of a company and it declares a one for ten reverse split, you will own a total of 1,000 shares after the split. A reverse stock split has no affect on the value of what shareholders own. Companies often split their stock when they believe the price of their stock is too low to attract investors to buy their stock. Some reverse stock splits cause small shareholders to be "cashed out" so that they no longer own the company’s shares.

A company’s board of directors may declare a reverse stock split without shareholder approval. Although the SEC has authority over a broad range of corporate activity, state corporate law and a company’s articles of incorporation and by-laws govern reverse stock splits.

If a company is required to file reports with the SEC, it may notify its shareholders of a reverse stock split on Forms 8-K, 10-Q and 10-K. (Source: SEC)

Reverse stock split, or reverse split, is a reduction in the number of a company's shares and an accompanying increase in the share price. The ratio is also reversed: 1-for-2, or 1-for-3.

There is a stigma attached to doing this so it is not initiated without very good reason. For example, many institutional investors or mutual funds have rules against purchasing a stock whose price is below some minimum, perhaps $5. An extreme case would be when a share price has dropped so low that it is in danger of being delisted from its stock exchange.

It is also possible that a reverse stock split could be used as a tactic to reduce the number of shareholders. In a hypothetical 1-for-100 reverse split any investor holding less than 100 shares would simply receive a cash payment and no shares of stock. If the resulting number of shareholders has then dropped below some threshold, it may be placed into a different regulatory category.

Typically, the stock will temporarily add a "D" to the end of its ticker during a reverse stock split. (Source: Wikipedia)