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Reverse stock splits occur when a publicly traded company deliberately divides the number of shares investors are holding by a certain amount, which causes the companys stock price to increase accordingly. However, this increase isnt driven by positive results or changes to the company.
The board of directors must approve the amendment to the companys certificate of incorporation effecting the reverse stock split (DGCL 141 and 242(b)).
Reverse stock splits work the same way as regular stock splits but in reverse. A reverse split takes multiple shares from investors and replaces them with fewer shares. The new share price is proportionally higher, leaving the total market value of the company unchanged.
For example, in a one-for-ten (1:10) reverse split, shareholders receive one share of the companys new stock for every 10 shares that they owned. In other words, a shareholder who held 1,000 shares would end up with 100 shares after the reverse stock split was complete.
Unless otherwise prescribed by this Code or by special law, and for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least two-thirds (2/3) of

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Shareholders do not lose money on a reverse stock split. The move consolidates the number of shares in existence, but the total value of the shares remains the same.
Stock splits are generally done when the stock price of a company has risen so high that it might become an impediment to new investors. Therefore, a split is often the result of growth or the prospects of future growth, and its a positive signal.
In addition, all OTC issuers, reporting and non-reporting, that wish to do a reverse (or forward) stock split must comply with FINRAs Rule 6490. Generally, a company must notify FINRA of its intentions at least ten (10) days prior to the desired effective date.
A company may declare a reverse stock split in an effort to increase the trading price of its shares for example, when it believes the trading price is too low to attract investors to purchase shares, or in an attempt to regain compliance with minimum bid price requirements of an exchange on which its shares trade.
Articles of incorporation are a set of formal documents filed with a government body to legally document the creation of a corporation. Articles of incorporation generally contain pertinent information such as the firms name, street address, agent for service of process, and the amount and type of stock to be issued.

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