Overview of Share Split Agreement

 

What is this document?

A Share Split Agreement enables a corporation to enact a share/stock split that results in the overall number of issued shares being increased. The overall value of the corporation and each individual shareholders’ holdings remain the same, though the increase in the number of shares results in a reduced price per share.

 

When would I use this document?

A share split is typically implemented when a corporation wishes to reduce the price per share to enable a wider range of investors to purchase the shares. Additionally, a corporation may utilize a share split to signal to potential investors that the shares have increased in value over time, resulting in the need to lower the price.

 

Who signs this Agreement

A Share Split Agreement is signed by the corporation’s Secretary (or other authorized signing officer) following resolutions by the corporation’s directors and shareholders approving the share split.

 

More details about this document

Although share splits may not change the value of a company, it does impact the tradability of a share. Share splits help make shares more affordable to small investors and provide greater marketability and liquidity in the market. Increased liquidity allows shareholders who wish to sell their stake in the corporation to sell their equity for cash more readily.

In addition to a traditional share split that increases the number of shares and reduces the price per share, a reverse share split will have the opposite impact on the corporation. It reduces the number of outstanding shares and increases the value of each share. These two forms of share splits enable a corporation to impact the price that their shares trade at without affecting the company’s overall value.

 

What are the core elements of this document?

The core elements of a Share Split Agreement include: Details of the Share Split, Closing Date and Further Assurances.  

 

Related Documents

Shareholders’ Agreement – an agreement among shareholders dealing with how the corporation will be governed, shareholder rights etc. The share purchase agreement will usually require the purchaser of the shares to sign the shareholders’ agreement (if there is one).

Directors’ Resolution – major decisions (or other decisions as required in a shareholders’ agreement) and all matters dealing with share structure and issuances will need to be ratified by the directors of the corporation.

Shareholders’ Resolution –  a resolution by the shareholders approving a transaction or decision, matters involving share structure or electing directors.

 

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