Reverse split

Recording a reverse split — fewer shares, higher nominal value, same capital. Plus the one problem reverse splits create that splits cannot.

Overview

A reverse split combines existing shares into a smaller number of larger ones. It is the mirror of a split (A6.5), so read that one first — this lesson covers what is different.

Share count goes down
Nominal value per share goes up
Share capital is unchanged
Nobody's proportion changes

A one-for-four reverse split turns 4,000 shares of €2.50 into 1,000 shares of €10. Capital stays at €10,000, and a holder with 10% still has 10%.

What you'll learn

How to tell a reverse split from a split when choosing
Why reverse splits happen in an LBO
The fractional-share problem, which splits do not have
What to check afterwards

Telling the two apart

The distinguisher is the share count: a split gives you more shares, a reverse split fewer.

Before you start

You need the resolution that authorised the reverse split. That is what the Document Checklist expects.

Steps

From the company navigation, open Timeline. It lists the company's events.
Select Record past event. Give the event an Event Label, then under Choose Decisions pick Reverse Stock Split.
Upload the authorising resolution.
Analyse.
Read the result, then check and correct in the decision.

Why a reverse split happens

Less common than a split in an LBO, and usually tidying:

Consolidating after a series of splits left an unwieldy share count.
Reaching a target nominal value ahead of a restructuring or a new class.
Simplifying the structure before an exit, where a cleaner capital table is easier to present.

As with a split, the reverse split is rarely the point. It makes something else possible.

The problem reverse splits create and splits do not

Fractional shares — and they are not a rounding nicety.

A split multiplies every holding by the same factor, so a holder with 100 shares gets 400. Always a whole number. A reverse split divides, so a one-for-four reverse split leaves a holder of 102 shares with 25.5.

Share quantities in Kapitable are whole numbers. So a reverse split whose ratio does not divide every holding evenly has remainders to resolve, and how they are resolved is a real question about somebody's holding rather than a display detail.

On a management package this is likely rather than hypothetical: thirty participants with individually negotiated allocations will rarely all divide by four.

So check every holding after a reverse split, not just the totals — and check what the authorising resolution says about remainders, because that is where the answer should come from.

What to check

Share capital is unchanged. Count × nominal before should equal count × nominal after.
Every proportion is unchanged.
Every holding is a whole number, and matches what the resolution intends for remainders.
Nominal value went up. If it went down, you have recorded a split.

Common problems

A holding is not a whole number. The ratio did not divide it evenly. Resolve it according to the resolution rather than by rounding to taste.

Share capital changed. Then it was not a reverse split — something else is in the decision.

You chose the wrong one of the two. Share count going up means a split; down means a reverse split — check the count rather than reasoning from the name.