When a company issues a (reverse) stock split (share split), they increase (or decrease) the amount of shares outstanding. They do this without issuing new shares and without increasing (or decreasing) the total share capital. A stock split has a ratio, which represents how many new shares will exist for every old share.
For example, in a stock split with a 2:1 ratio, the shareholder receives two shares for each share they hold in their possession.
Why do companies issue stock splits?
One possible goal of a stock split is to increase the liquidity of the share. Companies issue stock splits to reduce (or increase) the nominal value of one share. The total share capital will be divided over more (or less) shares, which would cause the value of one share to decrease (or increase). A lower (or higher) share price can improve the accessibility or desirability of investing in that company, which would mean that more people are able to trade their shares, which increases liquidity.
What is a reverse stock split?
This is the opposite from an 'ordinary' stock split: instead of splitting one share into several pieces, multiple shares get combined into one. This results in an increase in the share price instead of a decline, whilst the total share capital does not change.
Do I need to do anything?
A (reverse) stock split is a mandatory corporate action. This means that shareholders of the company whose shares are being split are not presented with a choice to participate in the corporate action. Thus, no action by the shareholders is required.
Stock splits are a very common occurrence. For instance, we have seen a stock split for Tesla (3-for-1) in August 2022. Apple also has performed various stock splits throughout their history, and our own stock has also been split in a 4-for-1 ratio back in August 2021.
However, not all companies perform stock splits when their share reaches a certain price. Berkshire Hathaway's A-shares have famously never split, even though the share price is the most expensive share in the world, having traded as high as $450.000 per share.
Note that these examples serve only informative purposes. This may not be considered investment advice.