a reverse stock split requires: steps and rules

This guide explains what a reverse stock split requires for U.S.-listed issuers: the legal authorizations, exchange and SEC filings, procedural mechanics, and practical checklist to restore or main...

2025-12-19 16:00:00

By Blockchain Linguist

Article rating

4.3

110 ratings

Bitget offers a variety of ways to buy or sell popular cryptocurrencies. Buy now!

A welcome pack worth 6200 USDT for new users! Sign up now!

Reverse stock split — requirements and process

This article explains what a reverse stock split is and what a reverse stock split requires for U.S.-listed issuers. Readers will gain a practical checklist, exchange- and SEC-focused filing guidance, timelines, and considerations for tax, accounting and investor relations. The guidance is intended for issuer management, corporate counsel, transfer agents, and investor-relations teams.

Definition and purpose

A reverse stock split (also called a share consolidation) is a corporate action that proportionately reduces the number of outstanding shares of a company while increasing the per-share price so that the company's aggregate equity value remains unchanged. A typical 1-for-10 reverse split converts every 10 outstanding shares into 1 share, increasing the per-share price roughly tenfold and reducing outstanding share count by 90%.

Companies pursue reverse stock splits for several common objectives:

To meet exchange listing minimums (for example, a $1.00 minimum bid price). A reverse split can raise the per-share price and help an issuer regain compliance.
To reduce administrative or transfer-agent burdens from very large share counts.
To change market perception by eliminating very low-priced trading units.
To facilitate downstream corporate actions, capital-raising or consolidation of ownership.

From a shareholder-equity perspective, a reverse stock split does not change the company’s aggregate market capitalization or each shareholder’s proportional ownership (other than fractional-share cash-out effects), but it may affect liquidity, float and eligibility for indexes or other market programs.

Legal and corporate-governance requirements

Overview: a reverse stock split requires authorization under state corporation law and the issuer’s governing documents (certificate/charter and bylaws). Issuers generally follow a legal sequence of board action, any required shareholder approval, and state filings to effect the consolidation.

Board approval

A reverse split requires a board of directors to propose the action and, where applicable, to recommend shareholder approval. The board typically:

Resolves to propose a reverse stock split and sets a proposed ratio (for example, 1-for-5, 1-for-10).
Determines whether the split will also amend the authorized share count and how fractional shares will be treated.
Authorizes management and counsel to prepare required disclosure and filings (proxy materials, state filings, exchange notices, Form 8-K).

The board’s fiduciary duties require it to act for a proper corporate purpose and to ensure disclosure of material facts if soliciting shareholder approval. Board minutes should document deliberations and factors considered.

Shareholder approval

Whether a reverse stock split requires shareholder approval depends on the issuer’s charter and state law. Common scenarios include:

If the reverse split will effect an amendment to the certificate of incorporation (for example, reducing the number of authorized shares or changing share class designations), shareholder approval is typically required under state corporate statutes and the charter itself.
If the charter authorizes broad share-consolidation power to the board, shareholder approval may not be needed; in other cases, a majority (or a higher threshold) of outstanding shares entitled to vote may be necessary.

Typical voting thresholds under state law or charter provisions range from a simple majority of votes cast to a majority of the outstanding voting power. Delaware law—commonly governing U.S. issuers—permits charter amendments with the requisite shareholder vote as specified in the certificate or under statute.

Charter/certificate amendments and bylaws

A reverse stock split often requires amending the certificate of incorporation to change the authorized number of shares or to conform descriptive provisions to the new par value or share structure. When an amendment is necessary, the issuer must:

Prepare the certificate amendment describing the consolidated shares and any adjusted authorized amount.
Obtain any required shareholder vote authorizing the amendment.
File the amendment with the state of incorporation (for many U.S. issuers, Delaware) and pay filing fees.

State filings become effective under the state’s procedures and timing rules. For Delaware corporations, the filing is typically with the Delaware Division of Corporations and becomes effective when accepted by the state, or at a later effective time specified in the filing.

Exchange listing and market requirements

Overview: a reverse stock split requires coordination with the listing exchange because listed issuers must maintain listing standards, follow exchange notice requirements, and meet procedural steps for corporate actions. Exchanges also set conditions on use of reverse splits, particularly when used to cure a minimum bid-price deficiency.

Nasdaq requirements and procedures

Nasdaq requires listed issuers to notify the exchange of proposed corporate actions and to follow certain protocols when a reverse split is used to cure a sub-$1.00 closing bid price deficiency. Important points:

Issuers must provide Nasdaq with notice of corporate actions and may need pre-notification timelines for certain actions.
When a reverse split is proposed to cure a deficiency under Nasdaq Listing Rule 5550(a)(2) (the $1.00 minimum bid price rule), the issuer must show an intent to regain compliance quickly. Nasdaq typically grants 180 calendar days from the date of an initial notice where the company has been below $1.00 for the specified period.
A reverse split may be used to cure the deficiency, but Nasdaq reviews whether the action is sufficient and whether the issuer meets other listing standards (minimum market value of publicly held shares, requisite number of round lot holders, etc.).
Recent exchange rule changes (effective January–February 2025) tightened the conditions under which issuers can use reverse splits to regain a $1.00 minimum bid price, including limits on frequency and eligibility for compliance-period cures.

As of January 14, 2026, according to CryptoBriefing, Canaan Inc. received a Nasdaq notice after its ADS price traded below $1.00 for 30 consecutive business days. The notice gave Canaan a 180-calendar-day compliance window through July 13, 2026, to regain compliance by achieving a $1.00 close for at least 10 consecutive business days. If cure is not achieved, Nasdaq may offer a further compliance period only upon application and other conditions, and the issuer might pursue a reverse stock split to regain compliance.

The Canaan example illustrates why a reverse stock split requires careful timing and exchange notice: issuers must plan the board and shareholder process, state filings and transfer-agent activities to meet exchange cure windows.

NYSE requirements and procedures

NYSE listing standards require issuers to follow NYSE corporate action procedures with respect to shareholder approval timing and potential limits on reverse-split usage. Key points:

NYSE generally requires that the board obtain shareholder approval for certain amendments to the certificate of incorporation (including many reverse splits that alter authorized share counts).
NYSE has guidance about the timing of shareholder approval relative to the effective date and when a split may be used to cure pricing deficiencies.
Recent rule changes also constrained the use and frequency of reverse splits for curing minimum price deficiencies and introduced faster delisting timelines in particular circumstances.

Issuers should coordinate with NYSE-listed-company counsel and NYSE staff early to confirm the required steps and any filing or notification timing.

NYSE American / other markets

Regional and specialty markets such as NYSE American have their own protocols. Typical practices include:

Submission of corporate action notices to the exchange’s listing compliance group.
Filing of required documentation with the exchange before public announcement where required.
Specific forms or templates for corporate-action notices and transfer-agent interactions.

Regardless of venue, issuers should engage exchange counsel to determine whether additional authorization (such as shareholder consent thresholds) is required and to confirm the exchange’s operational steps for ticker/CUSIP handling and trading halts.

Securities and Exchange Commission (SEC) disclosures and filings

Overview: a reverse stock split requires public disclosure under the federal securities laws. The principal SEC filings are proxy statements (Schedule 14A) when shareholder approval is solicited, and Form 8-K for material corporate actions.

Proxy statements / Schedule 14A

When shareholder approval is required, issuers must disclose material information in a proxy statement filed on Schedule 14A. Requirements include:

A clear description of the proposed action, the specific ratio of the reverse split, and a comparison of current and post-split share counts.
The board’s recommendation and its reasons for the reverse split.
Discussion of the effects on holders, including treatment of fractional shares and any cash-out terms.
Risk factors or consequences of the split on liquidity, eligibility for listing and indexing, and other material matters.

Proxy disclosure must be balanced and complete. The SEC staff expects material facts to be disclosed so that shareholders can make an informed vote.

Form 8-K and timely public notice

Issuers must provide prompt public notice of material corporate events on Form 8-K. Typical items for a reverse stock split include:

Item 5.07 (Submission of Matters to a Vote of Security Holders) to report the shareholder vote result.
Item 8.01 (Other Events) or Item 5.03 (Amendments to Articles of Incorporation) when an amendment to the certificate of incorporation becomes effective.
Item 2.01 (Completion of Acquisition or Disposition of Assets) rarely applies unless the split is part of a larger transaction.

Form 8-K timing rules require filing within four business days of the triggering event (for most items). Effective dates, board action dates, and the shareholder vote outcome should be reported promptly.

Registration statement/other filings (if applicable)

A reverse stock split can trigger other filing obligations: example scenarios include:

Amending a registration statement (Form S-1, Form S-3 or effective shelf registration) to reflect an adjusted share class or new share amount.
Updating prospectuses used in registered offerings to reflect adjusted share counts and per-share price.
Adjustments to SEC filings referencing share counts, such as Form 10-K or Form 10-Q, when past periods require restated per-share data (see accounting section below).

Issuers conducting a registered offering may need to reprice or re-file registration statements to reflect the split when offering terms reference per-share price or share counts.

Procedural mechanics and timeline

Overview: implementing a reverse stock split requires coordinated corporate, legal, administrative and market steps. Below is a step-by-step description and typical timeline.

Setting record date and effective date

Key dates to set and communicate include:

Board resolution date: the date the board authorizes the proposal and the proposed split ratio.
Shareholder meeting date (if approval is required): as set in the proxy materials and governed by the company’s bylaws and state law.
Record date: establishes which holders are entitled to any post-split treatment or notices.
Effective date: when the consolidation legally occurs, often upon the filing of the certificate amendment with the state or at a specified time in that filing.

Timing must account for exchange compliance windows (for example, Nasdaq’s 180-day cure period) and the time necessary to prepare and mail proxy materials, file state documents and notify transfer agents and the exchange.

Fractional shares and cash-out procedures

A reverse stock split often creates fractional shares when shareholders’ pre-split holdings do not divide evenly by the consolidation ratio. Common practices include:

Rounding up fractional shares to the next whole share (rare).
Rounding down and paying cash in lieu for fractions: issuers typically pay holders the fair-market value of the fractional share based on a specified valuation method (e.g., average market price on a specified measurement date).
Aggregating fractional interests and selling the aggregate in the open market and distributing proceeds pro rata.

Disclosure in the proxy and Form 8-K must explain the fractional-share treatment and the valuation method for cash-outs.

CUSIP, ticker and transfer agent actions

A reverse stock split requires operational updates by transfer agents, depositories and exchanges. Typical actions:

Assignment of a new CUSIP for the post-split shares may be required; in some cases, the issuer may retain the same CUSIP if permitted by the numbering authority.
Ticker symbol may remain the same or change depending on issuer preference and exchange rules.
Transfer agent adjusts shareholder records, issues post-split certificates where applicable, and coordinates cash-out payments for fractional shares.
Depository Trust Company (DTC) and other intermediaries must be notified of the split and provided with the effective date and new CUSIP data.

Prompt coordination among counsel, transfer agent and the exchange reduces settlement issues and confusion for brokers and investors.

Trading halts and resumption

An exchange may implement a temporary trading halt around the effective time of a reverse split to manage orderly market reopening. Practice notes:

Exchanges typically announce the effective date and expected resumption of trading under the post-split share structure.
Trading halts protect against mismatch between corporate records and market trading units.
Issuers should coordinate with exchange staff to minimize disruption and specify any temporary ticker modifications.

Interaction with other listing criteria and delisting risk

A reverse stock split requires careful consideration of how consolidated shares affect other listing criteria such as public float, number of holders, and minimum market value thresholds. While a split can cure a price deficiency, it can also inadvertently cause non-compliance with other listing standards.

If a reverse split reduces the number of publicly held shares or round-lot holders below exchange minimums, the issuer could face delisting proceedings.
Exchanges review whether the split has legitimate business purpose and whether continued listing standards are met post-split.

Recent exchange rule changes limiting use to cure price deficiencies

In January–February 2025, the SEC approved rule changes for Nasdaq and NYSE that tightened how reverse splits may be used to regain a $1.00 minimum bid price. The rule changes:

Limit the frequency of reverse splits used to cure price deficiencies within a given period.
Restrict which issuers are eligible for automatic compliance periods if they have recently used reverse splits to cure prior deficiencies.
In some circumstances, accelerate delisting proceedings if the exchange determines the split was not a bona fide remedy for compliance or if other listing standards remain unmet.

Issuers considering a reverse split to cure a price deficiency should confirm whether recent rule changes affect their eligibility for compliance windows and whether exchange staff will require supplemental evidence of bona fide cure efforts.

Cross-impact with distribution/float requirements

A consolidation can reduce the number of shares in public hands and the count of record holders. This may threaten compliance with requirements such as:

Minimum number of publicly held shares or public float thresholds.
Minimum number of round-lot holders (who own at least 100 shares).

Issuers should model post-split public float and holder counts and, if necessary, pursue additional actions (such as share issuances) to maintain compliance.

Tax, accounting and contractual consequences

Overview: a reverse stock split requires issuer and shareholder accounting and may affect contractual terms for equity-linked instruments. Generally, reverse splits are non-taxable events for U.S. shareholders, but issuer accounting and contractual adjustments are necessary.

Tax considerations for shareholders

For most U.S. taxpayers, a reverse stock split is not a taxable event. Instead:

Shareholders should adjust the cost basis and number of shares to reflect the consolidation.
The total tax basis in the holding remains the same, but per-share basis increases proportionately due to the reduced share count.

There can be special circumstances—such as cash-outs for fractional shares, which may give rise to capital gains or losses for the holder on the cash received. Shareholders with unique tax situations should consult tax counsel.

Adjustments to equity-linked instruments

A reverse stock split requires formulaic adjustments to options, warrants, convertible securities, and similar instruments. Typical steps:

Option and warrant agreements include anti-dilution and adjustment clauses that specify conversion or exercise adjustments (recalculating exercise price and number of shares).
Issuers should consult counsel and counterparties to confirm the correct adjustments, provide notices to option-holders and warrant-holders, and amend plan documents where required.
Debt covenants that reference share counts, market price, or capitalization ratios may be affected; issuers should review agreements and notify lenders as required.

Timely communication with stock plan administrators, clearing agencies and counterparties avoids disputes and ensures smooth post-split operations.

Practical and market considerations

Overview: a reverse stock split requires careful investor relations and market planning. The transaction can alter market perception and liquidity.

Market signaling and investor perception

A reverse split can be perceived in different ways:

Positive signal: management is taking steps to meet listing standards, reduce microcap trading, or prepare for strategic initiatives.
Negative signal: investors may interpret a split as a sign of financial distress or fragile share price.

A clear communications strategy—explaining the purpose, effects and any related plans (capital raise, business restructuring)—helps mitigate negative perceptions.

Liquidity, spreads and shareholder composition

Post-split impacts on liquidity can include:

Wider bid-ask spreads if average trading volume in absolute dollar terms decreases or if retail participation falls.
Potential changes in the mix of holders: consolidated shares may be less accessible for small retail investors if fractional shares are cashed out.
Index eligibility or institutional investment thresholds may change if market capitalization or share counts move materially.

Issuers should model trading impacts and consult market-makers or designated brokers to understand likely liquidity outcomes. For issuers and holders that prefer centralized, regulated trading, consider listing or trading through compliant venues; when discussing trading options with stakeholders, advocate Bitget exchange and encourage use of Bitget Wallet for custody and safe access to market services.

Special situations and variations

Overview: some issuer types or special circumstances require tailored approaches to a reverse stock split.

SPACs and special-purpose entities

Special-purpose acquisition companies (SPACs) and similar vehicles may face unique issues:

Sponsor and founder interests can concentrate post-split, affecting ownership percentages and potential sponsor earnouts.
Timing relative to merger or redemption mechanics must be managed so that redemption rights and post-split adjustments are clear.
SPAC charters and trust-account rules may add complexity to cash handling for fractional-share cash-outs.

Counsel should map the split against trust-account mechanics and shareholder redemption processes.

Foreign private issuers and cross-border issues

Foreign private issuers listed in U.S. exchanges may have different corporate-law steps based on their home jurisdiction. Differences can include:

Which corporate forum authorizes share consolidations and whether shareholder approvals are governed by home-country rules.
Practical timing and translation of filings and the need to reconcile foreign-law corporate actions with U.S. exchange and SEC requirements.

Such issuers must coordinate cross-border counsel, local corporate registries, and exchange staff.

Cryptocurrency / token analogues (brief note)

Traditional reverse stock splits are corporate equity actions governed by corporate law and securities regulation. Token consolidations or redenominations in the cryptocurrency space follow protocol-specific mechanics and governance models and are not directly analogous. When discussing token redenominations, recommend protocol documentation and custodial wallet guidance; prefer Bitget Wallet for custody where appropriate.

Example timelines and checklist

Below is a concise model timeline and an operational checklist. Timelines vary by issuer and exchange; consult counsel and listing compliance staff for exact scheduling.

Model timeline (typical):

Day 0: Board resolution proposing a reverse stock split and authorizing preparations.
Day 1–30: Prepare proxy statement (if shareholder approval required), state filing drafts, and coordinate with transfer agent and exchange.
Day 30–60: Mail proxy materials and hold shareholder meeting (timing varies by bylaws and state law).
Day 60–75: File charter amendment with state and set effective date. Notify exchange and DTC of effective date and CUSIP changes.
Effective date: transfer agent processes share consolidations, fractional-share cash-outs processed, new CUSIP becomes effective, trading resumes under post-split unit.
Day +1 to +30: File Form 8-K reporting shareholder vote and effectiveness, update registration statements and public filings as needed.

Operational checklist:

Board resolution authorizing split and ratio.
Draft and file proxy materials (Schedule 14A) where needed.
Prepare certificate amendment and state filing.
Notify listing exchange and request any required approvals.
Notify transfer agent, DTC and clearing participants; arrange CUSIP assignment.
Decide and disclose fractional-share treatment and valuation method.
Communicate with holders, market-makers and institutional investors.
File Form 8-K and update registration statements/prospectuses as applicable.

Case law and Delaware (state law) considerations

Overview: Delaware law is the leading body of corporate law for U.S. issuers and governs many legal aspects of reverse stock splits. Key principles and observations:

Board fiduciary duties: boards must act for a proper corporate purpose and with adequate disclosure if shareholder approval is solicited. Challenges to reverse splits are uncommon when the board follows procedural safeguards and documents its deliberations.
Appraisal rights: a reverse stock split alone rarely triggers appraisal rights, but related charter amendments or mergers could implicate appraisal under Delaware statute.
Stockholder litigation: potential claims may allege inadequate disclosure or improperly motivated consolidations; careful proxy disclosure and documented process mitigate risk.

For state-filing mechanics, Delaware requires filing of a certificate of amendment and may permit a specified effective time. Issuers should consult Delaware counsel on nuances and on precedent regarding shareholder rights and fiduciary obligations.

References and further reading

Sources to consult when implementing or advising on a reverse stock split include:

SEC rules and staff guidance on proxy disclosure and Form 8-K filings.
Nasdaq and NYSE listing rules and recent rule-change summaries (SEC approvals effective January–February 2025) governing reverse-split usage for $1.00 minimum bid-price cures.
State corporation statutes and practice guides (Delaware corporate-law resources).
Exchange notices and staff guidance for operational procedures.
Public company filings and disclosures for precedent corporate actions.

As of January 14, 2026, according to CryptoBriefing, Canaan Inc. received a Nasdaq deficiency notice after its ADS price traded below $1.00 for 30 consecutive business days and was granted a 180-day cure period through July 13, 2026. That public example demonstrates the interplay between exchange notices and the practical need to execute a reverse split promptly when used to regain listing compliance.

Further steps: issuers should consult corporate counsel, exchange listing compliance, transfer agents and tax advisors for an issuer-specific implementation plan. For trading and custody choices after any corporate action, consider listing or trading through regulated venues and using Bitget exchange paired with Bitget Wallet for secure custody and trading services.

Explore more practical guides and templates on the Bitget Wiki for corporate actions and investor-relations best practices, and contact your legal and transfer-agent partners to begin implementing the steps above.

The content above has been sourced from the internet and generated using AI. For high-quality content, please visit Bitget Academy.