Stock Split in simple terms is the increase in number of the company shares and decrease in price per share. The company in such circumstances maintains the same market capital as it is before split. Here are some of the reasons as why Corporates go for Stock Split.

Reason:

1. Create a liquidity in the share market.
2. Enhance the purchasing capacity of the investor.
3. Fall in the share price does attract investors to purchase the shares of corporates which were expensive otherwise.
4. Important Note:
   1. When bonus shares are issued by companies it changes the value of the share capital only. If a stock is slip in a prescribed ratio, then the authorized share capital remains unaltered.
5. Caution:
   1. The shareholders must be cautious when there is a stock split as the value of share decreases. They should wait for ideal time and sellout as and when the stocks increase in value.

Process of stock Split:

When a company/corporate plans to execute stock split it will inform to the shareholders about the change of it on a particular date. The shareholder will get the additional shares after that specified date.

Example of Stock Split:

1. A stock holds a selling value at INR 180 per share and the company/corporate issues a 3:1 stock split. The shareholder will be allotted two additional shares for every one share. It means the value of each share will be INR 60.00.
2. If a shareholder has ten shares, then total value will be INR 1800.00. (10x INR 180 = INR 1800). Now, the share holder will have 30 instead of 10 shares. And, the value per share is INR 60.00. Hence, total value of the shares will be INR 1800.00, (30 x INR 60 = INR 1800.00).

Reverse Stock Split:  

1. In this scenario, the company/corporate reduces the number of shares outstanding, and thereby the prices shall begin to rise.
2. For example, in a reverse 1:2 split, the share-holder with 100 shares at INR 50.00 per share shall own 50 shares worth INR 100.00 per share.
3. If a shareholder has twelve shares, then total value will be INR 1200.00 (12 x INR 100 = INR 1200). Now, the shareholder will have 6 instead of 12 shares. And, the value per share is INR 200.00. Hence, total value of the shares will be INR 1200.00, (06 x INR 200 = INR 1200.00).

Reason:

1. The companies adopt reverse split to increase the credibility and at times the company does to prevent the stocks from getting delisted. The companies prefer it when the share price is too low.

Advantages of Stock Split:

1. Companies create stock splits for numerous reasons. Stock splits benefits the small investors. When there is a split in the stocks there will be reduction in the value of the stock price. The reduction in the stock price increases the liquidity of the stock. The liquidity in turn enhances the affordability to trade in the stock markets. In the practical aspect, with the increase of stocks, the investors can buy the shares and sell them. There are instances wherein stock split will increase in the stock price due to the quick trading that begins with the decline in the price per share in the stock-split.
2. The corporates issues circulars about the stock split then often it is a sign of bullish market. In the bullish markets a typical situation may prevail and it can happen in this manner. The stock valuations rise high and as a result stock may not be within the reach of a small investors. This may keep such investors away from stock diversification.