A share of equity that is less than one full share. Fractional shares usually come about from stock splits, dividend reinvestment plans (DRIPs) and similar corporate actions. Normally, fractional shares cannot be acquired from the market. Fractional shares can be created in a situation where a company has a 3-for-2 stock split. Suppose you have three shares of XYZ Corp. and XYZ has a 3-for-2 stock split. In this case, you should get an extra 1.5 shares, which would be 4.5 shares total. Normally, you can't buy half a share in the stock market, but in this case, you could end up with a fractional share.
Most companies tend to round up to the nearest whole number of shares when fractional shares occur. In the above example, XYZ Corp. could opt to round up the 0.5 share to leave you with a full five shares. [Source:
http://www.investopedia.com]
Sayed Farrukh Ahmed
Assistant Professor
Faculty of Business & Economics
Daffodil International University
