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Simple English definitions for legal terms
stock split
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A quick definition of stock split:
Stock Split: A stock split is when a company decides to divide its existing shares into multiple shares. For example, if a company has 100 shares and decides to do a 2-for-1 stock split, each shareholder will receive two shares for every one share they previously owned, resulting in a total of 200 shares. This does not change the proportional ownership interests of each shareholder. A stock split makes the stock more affordable for investors and can increase liquidity.
A more thorough explanation:
A stock split is when a company issues two or more new shares in exchange for each old share without changing the proportional ownership interests of each shareholder. For example, if a company does a 3-for-1 stock split, an owner of 100 shares would receive a total of 300 shares, or 3 shares for each share previously owned. This lowers the price per share and makes the stock more attractive to potential investors.
For instance, if a company's stock is trading at $300 per share and they do a 3-for-1 stock split, the new price per share would be $100. This makes the stock more affordable for investors who may have been hesitant to buy at the higher price.
Overall, a stock split does not change the value of a shareholder's investment, but it can increase liquidity and trading activity in the stock.