Fractional share is a portion of one whole share of a company. Such shares are formed because of corporate actions such as mergers, stock splits, etc. These shares cannot be bought and sold since they do not trade in the market. Hence, the company either rounds up the fraction to the next whole number or appoints a trustee who then buys back these fractional shares from the investors and the respective amount is credited to their bank account.
Let us understand with an example:
Suppose you own 5 shares of a company, which announces a stock split of 3:2. You will receive 3 shares for every two shares that you own. Thus for 9 shares you should receive 7.5 shares or you might receive 8 shares if the company decides to round up.
Since the fractional shares don’t trade in markets the company appoints a trustee to buy the fractional shares. The trustee then buys back those fractional shares from the investors and the proceeds are then credited to the primary bank account.