The term “Fractional Share” is used to describe a share of equity with a value that calculates out to an amount that is less than one full share. The source of fractional shares will often be a direct result of stock splits, dividend reinvestment plans (also known as “DRIPs”) and other types of comparable actions taken by a corporation. Under normal circumstances, however, fractional shares are unable to be purchased or otherwise acquired through the markets.
Fractional shares could also be created in a hypothetical situation in which a company completes a “three for two” stock split. In the event that you had three shares of the Corporation X, and Corporation X had a “three for two” stock split, then you would receive an additional 1.5 shares. This would be added to your original three shares, which would calculate out to four and a half shares in total. Again, under normal circumstances you would not be able to buy a half of a share on the stock market. However, in a case like this “three for two” stock split, you might still wind up holding a fractional share.
When dealing with fractional shares in the end, however, the majority of companies will usually “round up” to the next highest whole number of shares when a fractional share happens. Using the above hypothetical situation, for example, Corporation X might easily decide to “round up” the half share you received on the stock split, and a full five shares would be yours.
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