A company may, if so authorised by its Articles, convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination. So every ‘stock’ is a ‘share’ while every ‘share’ may not be a ‘stock’.
The method of conversion of shares into stock is given below:
1. To pass a resolution in the meeting of shareholders:
A company can convert the shares into stock by passing an ordinary resolution in the meeting of shareholders. A limited liability company having share capital may, if so authorised by its articles, convert fully paid-up shares into stock and reconvert that stock into fully paid-up shares of any denomination by passing a resolution in its general meeting.
2. Information of conversion to the registrar:
The information of conversion should be sent to the Registrar within thirty days of conversion.
3. To make alteration in the articles:
A company may, if so authorised by its Articles, convert shares into stock. If the company is not so authorised by its Articles then the company may get this right by altering its Articles by passing a special resolution.
4. To close transfer books and to inform the shareholders:
After the approval of ordinary resolution, the company closes its transfer books and informs the shareholders to surrender the share certificate.
5. To issue stock certificate and prepare register:
When stock is issued to the members, it is entered in the Register of stockholders. This register is kept like the Register of Members.
6. Transfer of stock:
The stock may be transferred like shares.
Effect of Conversion of Shares into Stock:
Where a company with share capital has converted any of its shares into stock, and has 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.