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What is consolidation of shares?

By: Akriti Tomar | Date : Mar 3, 25

What is consolidation of shares?

Consolidation of shares, also known as a reverse stock split, is a corporate action where a company reduces the number of its outstanding shares by merging multiple shares into one while increasing the face value per share. This process does not change the overall value of a shareholder’s investment. Companies typically notify shareholders via email before executing a share consolidation.

Example Scenario

Let’s say Mr. A holds 10,000 shares of a company, each valued at ₹10. If the company announces a share consolidation in the ratio of 1:5, every 5 shares will be merged into 1 share.            Before consolidation:
  • Total shares: 10,000
  • Price per share: ₹10
  • Total investment value: ₹1,00,000 (10,000 × ₹10) After consolidation:
    • Total shares: 2,000 (10,000 ÷ 5)
    • Price per share: ₹50
    • Total investment value: ₹1,00,000 (2,000 × ₹50)
As seen above, while the number of shares decreases, the total value remains unchanged.

Fractional Shares in Share Consolidation

In some cases, a share consolidation may result in fractional shares, which are holdings that amount to less than one full share. Since fractional shares are not actively traded in the market, companies appoint a trustee to manage them. The trustee typically buys back these fractional shares from shareholders, and the proceeds are credited to the investor’s primary bank account. Need Help? Contact RMoney at 0562-4266600 / 0562-7188900 or email askus@rmoneyindia.com 

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