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Sunday, May 11, 2014

Conversion of Shares into Stock

Meaning and Procedure
Conversion of fully paid shares into stock may likewise be affected by the ordinary resolution of the company in the general meeting. Notice of the conversion must be given to the Registrar within 30 days of the conversion, the stock may be converted into fully paid shares following the same procedure and notice given to the Registrar.
Section 96 of the Companies Act provides that where a company having a share capital has converted any of its shares into stock, and given notice of the conversion to the Registrar, all the provisions of this Act which are applicable to shares only, shall cease to apply as to so much of the share capital as is converted into stock.
The total amount of the share capital is divided into the number of shares. Each share has a fixed value. A share is a fixed unit of value. When a number of shares are converted into a single holding with a nominal value equal to that of the total value of the shares, it is called conversion of shares into stock. Stock is the aggregate of the fully paid-up shares legally consolidated and portions of which aggregate may be transferred or split up into fractions of any amount without regard to the original nominal value of shares.

One of the ways of alteration of Share capital of a company is conversion of shares into stock, and also by re-conversion of the stock into shares. For example, if 100 shares of Rs. 10 each are converted into stock of Rs. 1000, the holder of 100 shares of Rs. 10 each will have Rs. 1,000 stock after the conversion. But the resultant value of Rs. 1,000 is not the face value of the shares or the stock. While converting Shares into stock, the following provisions are important :

1.Only fully paid shares can be converted into stocks
2.Direct issue of stock to members is not lawful and cannot be done.
3.The difference between shares and stock is that shares are transferable only in complete units so that transfer of half or any portion of share is not possible whereas stock is expressed in terms of any amount money and is transferable in any money fractions.
4.Articles may be give the Board of Directors authority to fix minimum amount of stock transferable.
5.Since stock is not divided into different units it is not required to be numbered. Shares on the other hand must be numbered.

Distinction between share and share stock is as follows:
Share
Stock
1.       A share may either be fully paid up or partly paid up.
2.       Shares can be issued originally.
3.       A share has a nominal value.
4.       A share has a definite number which distinguishes it from other shares.
5.       A share can be transferred only in its entirety or in its multiples only.
6.       Shares can be issued by any company-public or private.
1. Stock can never be partly paid -up.
2. A company cannot make an original issue of stock.
3. A shock has no nominal value.
4. A shock has no such number.

5. Stock may be transferred in any fractions.

6. Stock is applicable only by public company limited by shares.