How to Survive Share Consolidation

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Share Consolidation is a process that a company undergoes when it changes the structure of all its issued shares. 

This can have good or bad consequences, depending on current shares you hold, and the share consolidation ratio. 

For example, lets say you have 2000 shares in abc company, and the ration is 20 / 1, after the consolidation, you will be left with, 100 shares. Depending on the share price, this can either be to your benefit or to your detriment. 

Companies usually apply for a share consolidation to strengthen their bottom line, and improve the companies financial situation, to comply with rules and requlations set forth by an exchange, such as the TSX (One of the main rules set forth by this exchange is that the market cap of a company cannot fall below 3 Million, to remain listed), or when they are merging with another company. 


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If you are trading in small cap companies, it is generally wise to buy 2000 shares or more. Should there be a consolidation, you have a better chance of ending up on your feet. The more shares you have, the better of you are. Depending on the stock price, it can also work to your disadvantage. 

If you own 10 000 shares, every cent is worth $100. Should you make the wrong choice, and the share price goes down, you can lose hundreds of dollars in one day.

Small companies on the big exchanges are the worst companies to own shares in. They are usually not stable enough to comply, with the listing rules and regulations. Although, they are not all bad, just very risky. 

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Some of them are actually in the black and paying dividends.  Be aware that at any point, they may resort to a share consolidation, to stay afloat. The trick is to get in, take a bit of profit and get out again. 

Consider the larger companies, with good income statements for long term investments, but be careful, companies in the black, are good targets for a merger. If one company takes over another company, the shares may be consolidated, to account for an increased share price. 

Lets take for example a company worth .53, and it is being taken over by a company with a share price several times it value, after the merger, the share price will be adjusted to match the value of the merged company. 

In this case the more shares you have the better off you are. I have learned that shares are usually consolidated after a merger on a basis of 1 / 50 shares, depending on value of the companies being merged.

Understanding what happens in a share consolidation, is very important when trading stocks on the stock market. Do your research, stay with companies that pay dividends, or have good income statements, wait before you buy, and buy as many shares as you can afford.