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If you are looking to boost share sales or get your company ready for new investors, you may wish to consider a share split. A share split increases the number of shares you have on offer. This can be an effective way to refresh interest in your company without changing the company’s overall share value. This article will explain the benefits of share splitting and guide you through the steps required to split or subdivide your company’s shares. 

How Does it Work? 

A share split, also known as a share division, involves taking your company’s existing number of shares and dividing them. As a result, each individual share is worth less but investors have more shares. Therefore, the shares still have the same total value as before. 

For example, in a 2-1 share split, each shareholder with one share would receive an additional share, and the value of each share will be reduced by 50%. This could mean that each share changes from $1 per share to 50c per share. The underlying value of the stock and the company does not change.

This is the opposite of a share consolidation or reduction. In those cases, the number of shares decreases but the value of each share increases.  

What Are the Benefits? 

A share split is commonly used by companies to reduce the value of shares. This may be helpful when the share price is particularly high, as reducing the value of each share can attract new investors with more affordable stock. For this reason, it is often done before additional investments are made in a company. Generally, shares are easier to buy and sell when there are more available. Share splitting may also be a more effective option than issuing new shares in the company. This process is usually more costly and can dilute the existing shareholders’ ownership of the company. 

5 Steps to Completing a Share Split

You should follow the correct procedure when completing a share split. You will need to meet all legal requirements for changing the value of shares within a company. The key steps are set out below.

1. Get Shareholder Approval

The shareholders must approve the proposed split by either: 

  • signing and dating a unanimous circular resolution; or 
  • attending a general meeting and passing a resolution for the share split. 

The resolution should specify the existing share capital, how you will calculate the division of the shares and the new total number of shares. 

For example, if the existing share capital is 10 shares and the split calculation is that each share is to be split into 20 shares, the new total number of shares will be 200. The resolution should specify these figures. The resolution should also specify the date of effect of the share split. 

2. Update the Share Register

You will need to update the official share register after the changes. 

3. Re-Allocate Unpaid Share Amounts 

If there are any amounts unpaid on existing shares to be converted, these must be divided equally among the replacement shares. 

4. Issue New Share Certificates

You will need to issue replacement share certificates to each shareholder. You should destroy the original share certificates. 

5. Notify ASIC

Shareholders must inform the Australian Securities and Investments Commission (ASIC) within 28 days of the changes taking effect’. Late fees will apply if you fail to notify ASIC on time. 

Key Takeaways

A share split can be an effective way to boost interest in your company by increasing the number of affordable shares available. Before you take steps to split shares you should get taxation and accounting advice and legal advice to confirm you meet all the legal requirements of making the changes to the company’s share structure. If you have any questions, contact LegalVision’s business lawyers on 1300 544 755 or fill out the form on this page.  

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