A stock split divides each existing share into multiple shares so the price per share drops but your ownership percentage stays the same.

How it works

In a 4-for-1 split, every share becomes four; a $400 stock becomes $100 with four times the shares. The board and shareholders approve the split; cap table software adjusts certificates and options. Public companies split to keep retail trading accessible; private startups split to give employees smaller-dollar option grants.

Reverse splits reduce share count and raise nominal price—sometimes used before a listing or to meet exchange minimums.

Why it matters

• Founders: Splits do not create new value; they simplify psychology and admin.
• Operators: HR and finance must update option agreements, 409A history, and investor reporting after the split.

Common mistake

Believing a split helps the company’s valuation. Markets adjust mechanically; fundamentals unchanged.

Related ideas

Reverse split, cap table, option grant, and authorized shares.

When you will see it

Private companies split before large option grants to employees or before IPO when share prices would otherwise look intimidating to retail investors.

Questions to ask

• Are all option grants and warrants adjusted automatically?
• Does the split require shareholder approval under the charter?
• How does this affect 409A history and board reporting?

Practical takeaway

Treat stock split as something to define precisely in writing—not assume everyone in the room shares the same meaning. In term sheets, board decks, and LP updates, tie the concept to a concrete decision: a vote, a price input, a fund policy, or a metric formula. When definitions drift, teams misprice risk, miss leverage, or waste cycles on the wrong conversation.