Reverse Splits Without a Shareholder Vote: Board Authority by State

The short version

A reverse split changes the company's charter or its share capital, so in most places it needs shareholder approval. Whether the board can do it alone, or what kind of approval is needed, is set by the law of the state (or country) where the company is incorporated, and by its own charter.

There are three ways a reverse split can happen without a shareholder meeting where holders cast votes:

1. Board action under a statute that allows it, the clearest case being Nevada's NRS 78.207.
2. Written consent of holders with enough voting power, followed by a Schedule 14C information statement.
3. A ratio picked from a pre-approved range, where holders voted earlier and the board chooses the final number later.

Delaware is different from Nevada. Its 2023 amendments made a reverse split easier to approve for listed companies, but they did not remove the vote.

Nevada: NRS 78.207

NRS 78.207(1) lets a Nevada corporation change the number of shares of a class by a resolution of the board of directors, without obtaining the approval of the stockholders, as long as it changes the authorized shares of that class and the issued and outstanding shares of that class held by each holder in the same proportion. The articles of incorporation can provide otherwise.

So a Nevada reverse split that cuts authorized and outstanding shares by the same ratio can be a board decision. The limits are in the same section:

• Large cash-outs need a vote. Under subsection 2, if the split would pay only money or issue scrip to holders who together hold 10% or more of the class and who would otherwise receive a fraction of a share, holders of a majority of the voting power of the class must approve it.
• Other classes can have a vote. Under subsection 3, if the change would adversely alter the rights or preferences of another outstanding class or series, that class or series votes on it, unless the articles deny that vote.
• Dissenters' rights. Under subsection 4, if the cash-out covers holders of 1% or more of the class, a holder who must accept money for a fraction may dissent and seek the fair value of that fraction under NRS 92A.

A worked example

Hypothetical Company X, a Nevada corporation, has 100,000,000 authorized shares and 40,000,000 outstanding. Its board adopts a 1-for-10 reverse split under NRS 78.207.

All figures are hypothetical.

Delaware: what the 2023 Section 242 amendments changed

Delaware's charter-amendment rule is DGCL Section 242. Under Section 242(b)(1), the board adopts the amendment and puts it to holders, and it passes with a majority of the outstanding stock entitled to vote.

Senate Bill 114, effective August 1, 2023, added Section 242(d). It does two different things:

• Forward splits, no vote. Section 242(d)(1) says no meeting or vote is required for an amendment that subdivides the issued shares of a class into more shares (a forward split), and lets that amendment increase authorized shares up to a proportionate amount, provided the company has only one class of stock outstanding and that class is not divided into series.
• Reverse splits, a lower vote. Section 242(d)(2) lets a company combine its issued shares into fewer shares (a reverse split), or increase or decrease its authorized shares, without the vote Section 242(b) would otherwise require, if three conditions hold:
  1. the class is listed on a national securities exchange immediately before the amendment takes effect, and still meets that exchange's minimum-holder requirement immediately after;
  2. at a meeting, the votes cast for the amendment exceed the votes cast against it; and
  3. for a change in a class's authorized shares, where the charter has not used the class-vote opt-out in Section 242(b)(2), the class's own votes for exceed its votes against.

Both paragraphs apply "unless otherwise expressly required by the certificate of incorporation", so a charter can opt back into the higher vote.

In short, a listed Delaware company still needs a shareholder vote at a meeting for a reverse split. The standard is votes cast for exceeding votes cast against, rather than a majority of all outstanding shares. Section 242 does not provide a board-only route for a reverse split.

Written consent: the other route with no meeting

Where state law and the charter allow it, holders can approve an action in writing instead of at a meeting. In Delaware, DGCL Section 228 requires consents from holders with at least the votes that would be needed if every share entitled to vote were present and voted. Section 242(d)(2)'s lower standard is written for a vote taken at a meeting. In Nevada, NRS 78.320(2) allows consent by holders of at least a majority of the voting power, unless the articles or bylaws say otherwise.

For a company with securities registered under Section 12 of the Exchange Act, action by consent without a proxy solicitation triggers Rule 14c-2: an information statement must be sent at least 20 calendar days before the earliest date the action may be taken. That is the PRE 14C and DEF 14C sequence explained in the Schedule 14C guide.

Pre-approved ranges

Many proxies ask holders to approve a range of ratios, for example 1-for-5 to 1-for-50, and leave the board to choose the ratio and timing. The board's later choice is not a new vote. It still rests on the earlier approval, and the company usually announces the final ratio in an 8-K or a press release.

What still applies without a vote

Skipping the vote does not skip the disclosure or exchange rules. A listed company still files the charter change and announces the split, and on Nasdaq it must notify the exchange at least ten calendar days before the market effective date under Rule 5250(e)(7). Nasdaq's bid-price limits apply however the split was approved; see Reverse Stock Split Explained.

How to check a company on Signal8

• The Reverse Splits page shows an Approval badge on each tracked split (Shareholder vote, Written consent, Pre-approved range, Board only or Not determined), and Signal8 Pro readers can filter for companies whose board can split without a vote. That filter uses the company's own prior board-only filing or a charter clause, never the state alone. See how to use the Reverse Splits page.
• The live SEC filings feed shows 8-Ks, proxies and information statements as they are filed.
• A company's filings tab lists past split filings, including any that state no shareholder approval was required.

FAQ

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Educational content only. Signal8 is not a broker-dealer or investment adviser, and nothing here is a recommendation to buy or sell any security.