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
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Stock
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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.
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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.
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