Proposal for the Stock Split and Increase in the Authorized Number of Shares
What this document covers
The Proposal for the Stock Split and Increase in the Authorized Number of Shares is a legal document used by corporations to formalize changes in the share structure. This form specifically allows a company to propose a stock split, such as a 3-for-1 split, and adjust the total number of authorized shares. It differs from similar forms by detailing both the rationale for the stock split and the mechanisms for distribution of new share certificates to shareholders, thereby promoting liquidity in the company's stock.
Key components of this form
- Date of board approval for the stock split and increase in shares.
- Details of the current and proposed par value of shares.
- Rationale for the stock split, including share pricing and market liquidity.
- Delivery of additional share certificates post-approval.
- Changes to shareholder plans, like a Dividend Reinvestment Plan.
- Tables showing actual and pro forma capitalization of the corporation.
Common use cases
This form should be used when a corporation's Board of Directors decides to implement a stock split to make shares more affordable and increase market liquidity. It is also applicable when the company needs to increase the total number of authorized shares to accommodate future business opportunities, such as new investments or acquisitions.
Intended users of this form
- Corporate Boards of Directors planning to initiate a stock split.
- Shareholders needing information about changes in share structure.
- Corporate secretaries responsible for legal compliance and documentation.
- Investors interested in understanding the implications of stock splits on their holdings.
How to complete this form
- Fill in the date when the Board of Directors approved the proposal.
- Provide the current and proposed par value of shares.
- Outline the reasons for the stock split and increase in authorized shares clearly.
- Specify how the additional share certificates will be distributed to shareholders.
- Prepare the capitalization table reflecting both actual and pro forma figures.
- Review the document for accuracy before submitting it for shareholder approval.
Is notarization required?
This form usually doesn’t need to be notarized. However, local laws or specific transactions may require it. Our online notarization service, powered by Notarize, lets you complete it remotely through a secure video session, available 24/7.
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Make edits, fill in missing information, and update formatting in US Legal Forms—just like you would in MS Word.
Download a copy, print it, send it by email, or mail it via USPS—whatever works best for your next step.
Sign and collect signatures with our SignNow integration. Send to multiple recipients, set reminders, and more. Go Premium to unlock E-Sign.
If this form requires notarization, complete it online through a secure video call—no need to meet a notary in person or wait for an appointment.
We protect your documents and personal data by following strict security and privacy standards.
Common mistakes
- Failing to complete all required sections of the form.
- Providing inaccurate financial figures in the capitalization table.
- Not specifying the effective date for the stock split and issuance of new shares.
- Neglecting to detail the rationale convincingly for shareholder understanding.
Legal use & context
- Enables corporations to align their capital structure with business objectives.
- Facilitates comparison for investors through clearer stock pricing.
- Ensures compliance with state corporate governance regulations.
- Defines the process for amending the corporate articles of incorporation.
Quick recap
- The form is essential for legal formalization of stock splits and share increases.
- It outlines the clear benefits of stock splits to improve pricing and liquidity.
- Corporate governance measures require shareholder approval for amendments.
- Attention to details in financial figures and processes ensures legal compliance.
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FAQ
The only journal entry needed for a stock split is a memo entry to note that the number of shares has changed and that the par value per share has changed (if the stock has a par value).
The number of authorized shares per company is assessed at the company's creation and can only be increased or decreased through a vote by the shareholders.
Stock splits don't create a taxable event; you merely receive more stock evidencing the same ownership interest in the corporation that issued the stock. You don't report income until you sell the stock. Your overall basis doesn't change as a result of a stock split, but your per share basis changes.
If you own a stock that declares a split, the number of shares you would own after the split increases. However, the price per share reduces. This is because the market capitalisation remains the same. So, as an investor, though the price you get for each share actually declines, the total number of shares increases.
The value of a company's shares remain the same before and after a stock split.The value of the investment remained at $6,000. If the stock pays a dividend, the amount of dividend will also be reduced by the ratio of the split. There is no investment value advantage to buy shares before or after a stock split.
When a stock splits, it has no effect on stockholders' equity. During a stock split, the company does not receive any additional money for the shares that are created. If a company simply issued new shares it would receive money for these, which would increase stockholders' equity.
The only journal entry needed for a stock split is a memo entry to note that the number of shares has changed and that the par value per share has changed (if the stock has a par value).
Forward Splits A forward stock split increases the total number of shares issued and outstanding.If the forward split results in more stock issued than is available in authorized shares, the board holds a vote of the stockholders to authorize more shares.
An increase in the number of issued and outstanding shares of stock which decreases the share price proportionately.However, in practice, most US companies effect stock splits by issuing stock dividends, because this generally does not require stockholder approval.
