Your proportional holding in the company remains unchanged....

Your proportional holding in the company remains unchanged. Immediately after a SP consolidation, the Market Cap (MC) of the company remains unchanged.

So why consolidate?

Pro: when a company has 200m Shares on Issue (SOI) but a low Share Price (SP) of around 4c, every 1c change is a 25% price fluctuation. This creates massive fluctuations in the MC figuratively speaking... at least on paper. It can also be done with a relatively low priced purchases. This means the SP and MC can be manipulated easily with little effort. Holders also see huge fluctuations in the value of their holdings. It's a pain for companies to deal with, especially is the are looking for stability in their MC when trying to find outside investment. In comparison, at 20c a 1c price change only changes the SP and MC by 5% making the oscillations of the SP/MC smaller.

It also makes the spread between the BUY/SELL offer pads 12.5% (@4C) when using 0.5c price increments. This stifles trading as buyers/sellers need to accept a 12.5% hit to their price if wanting to accept the next higher/lower increment on the offer list. At 20c SP this is only a 2.5% split between buy/sell which facilitates trading and allows more finesse.

Con: when the SP gets so small it almost has no where to go. At the extreme end... once the SP gets to 1c (or 0.5c) the only movement down would take the MC to zero. Extreme case... If you had a $20m MC company with 0.5c share... well the only price increment lower would be ZERO which takes the MC from $20m to ZERO in one price increment which won't happen... so your company is locked at a $20m MC (despite is being worth only say $10m MC - so no one wants to sell for zero as it is worth at least $10m in value, and no one wants buy for 1c as it ain't worth a $20m MC). By consolidating your $20m company to 20c/sh... well then the MC can easily continue trading lower which is a downside to the consolidation.

Hope that helps.