Core terms
Reverse stock split
A corporate action that combines several existing shares into one, so the share count falls and the price per share rises by the same ratio. The company's market value does not change at the moment of the split.
In a 1-for-10 reverse split, every ten shares become one: 50 million shares at $0.40 become 5 million shares at $4.00. Prior prices on charts are adjusted, so the history looks continuous.
Small caps often reverse split to meet exchange minimum-price rules. On Nasdaq, a stock that closes below $1.00 for 30 consecutive business days receives a deficiency notice and generally has 180 days to regain compliance. Since January 2025, a company that has done a reverse split in the prior year gets no such compliance period, and Nasdaq requires notice at least ten calendar days before a split takes effect.
A reverse split does not raise money or change the business. It often comes alongside financing: a higher share price and a smaller share count can make a new offering easier to sell.
What traders should verify
Check the split ratio and effective date, use split-adjusted prior closes when comparing gaps, and look for active shelf or ATM capacity after the split.
Do not conflate
State law and the company's charter govern whether shareholders must approve. Investor.gov warns that investors may lose money from price swings after reverse splits.