An odd lot is a share holding of less than 100 shares. An odd lot is considered to be an insignificant amount of stock, which issuing companies try to eliminate in order to avoid the expense of having to issue annual reports and stockholder voting materials to these shareholders. A company can use several methods to eliminate odd lot holdings, including:
- Buying out these share holdings at a small premium to the market price
- Engaging in a reverse split, which reduces the odd lot holdings to less than one share, thereby allowing the company to pay the investors for their residual holdings in cash
- Offering to sell additional shares to odd lot shareholders, in order to bring their holdings up to a higher level
A shareholder may inadvertently find himself with an odd lot holding for several reasons, including:
- A reverse stock split reduced the entity's holdings to a level below 100 shares
- The shareholder is an employee who was issued a small number of shares as part of a stock option plan
- The shareholder is a third party who was issued a small number of warrants as part of a supplier compensation plan
- The shareholder gifted a small number of shares to one or more third parties
- The shareholder received the shares as a gift from an existing shareholder
- The shareholder sold off a small number of shares, leaving a residual balance
In short, odd lot shares are an undesirable situation for a company, since they are not cost-effective. Consequently, there is usually an ongoing, low level of effort to eliminate odd lot holdings. This is not an extensive effort, since the cost savings from the elimination of odd lots is not substantial.
Investors generally do not like to acquire shares in odd lot sizes, since the related broker commission is disproportionately high on such small purchases.