Fractional Share

A fractional share is a fraction of a share or less than one whole share. A fractional share can occur if a company splits its stock, merges with another company in a stock swap or stock buyout or pays a stock dividend. Although most companies allow fractional share holdings to exist in their dividend reinvestment plan, an investor cannot buy and sell a fractional share. Instead, the company will require an investor who is liquidating a fractional share position to accept the cash value of the fractional share. Another alternative is for the company to round the fractional share amount up or down to the nearest whole number of shares. The IRS requires investors to include fractional share amounts in their cost basis when reporting stock sales on Schedule D of their tax return.