For example, in a 10-for-1 split, a shareholder will receive ten new shares for each original share owned without having to furnish additional capital and without an accompanying increase in the capital stock. At the same time, however, the fraction of the capital stock represented by one share decreases in proportion to the split ratio. In the case of par value shares, the par value of each share is correspondingly reduced.

Companies often split their stock in order to make their shares appear less expensive in the hope that this will induce investors to buy.