Stock Splits

A stock split in a startup is a corporate action that increases the number of shares while reducing the price per share, without changing the company’s overall valuation. It is often used to improve liquidity, attract investors, and make shares more accessible.

Types of Stock Splits

  1. Forward Stock Split – Increases the number of shares while reducing the price per share (e.g., a 2-for-1 split means each shareholder gets two shares for every one they previously owned).
  2. Reverse Stock Split – Reduces the number of shares while increasing the price per share (e.g., a 1-for-5 split means every five shares are consolidated into one).

Why Startups Use Stock Splits

  • Improves Marketability – Lower share prices can attract more investors.
  • Enhances Liquidity – More shares in circulation can increase trading activity.
  • Aligns with Growth Strategy – Helps startups prepare for future funding rounds or public offerings.

Impact on Shareholders

  • Ownership Percentage Remains the Same – The total value of holdings does not change.
  • Potential for Increased Demand – Lower-priced shares may appeal to a broader investor base.
  • Dilution Considerations – While stock splits do not inherently dilute ownership, they can affect future equity distributions.

Written by Swedish Ventures, Rolf Olsson. Remarks to this article could be sent to glossary@swedishventures.se

ASO: DD-01-18

ASO IDDD-01-18