Procedure for Conversion of Shares into Stock

     

Section 61(1)(c) of the Companies Act 2013 provides that a limited company having a share capital, if authorized by its articles may convert any of its fully paid shares into stock, and reconvert stock into fully paid up shares of any denomination. Only fully paid shares can be converted into stock. The issue of a partly paid-up stock is void.

A company limited by shares or by guarantee having a share capital, if so authorised by its articles, may alter its memorandum for converting any of its fully paid- up shares into stock or vice versa. 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. It may be noted that no company is authorised to issue stock directly even against payment of full nominal value in cash. The company must first issue shares which may be converted into stock only when they are fully paid up.

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.

In either case, a notice must be given to the Registrar in Form SH – 7 within thirty days after doing so.

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.

The convenience of stock, besides its divisibility, is that it becomes no longer necessary in a transfer to specify all the number of various shares comprised in the transfer: a transfer is made of so much stock.

Procedure for Conversion of Shares into Stock

Stock is the aggregate of fully paid shares consolidated. Portions of this aggregate may be transferred or split up into fractions of any amount irrespective of the original nominal value of the shares which have been converted into stock. 

A company which proposes to convert any of its fully paid shares into stock has to follow the following procedure:

1.  The company has to make sure that its articles of association contain a provision authorising it to convert its fully paid shares into stock. If there is no such provision, the articles have to be first altered in accordance with the provisions of Section 14 of the Companies Act, 2013.

2.   Give the stock exchanges twenty-one days’ notice of the proposed conversion of its fully paid shares into stock.

3.    Make applications to the stock exchanges on which the securities of the company are listed for listing of the stock which will come into being as a result of conversion of the fully paid shares into stock.

4.      Convene and hold a Board meeting to –

·        Pass a resolution in respect of the conversion of fully paid shares of the company into stock.

·       Fix time, date and venue for holding a general meeting of the company to pass a special resolution, if so required by the articles for this purpose [Section 13 (1)].

·    Approve notice and explanatory statement to be annexed to the notice of the general meeting as per Section 101 and 102 of the Act.

·    Authorise the company secretary to issue notice of the general meeting as approved by the Board.

5.   In the case of a listed company, on the conclusion of the Board meeting, send to the stock exchanges, where the securities of the company are listed, particulars of such alteration to the share capital clause in the memorandum of association of the company.

6.  Issue notice of the general meeting to the members, directors and auditors of the company. In the case of a listed company, forward three copies of the notice of the general meeting to the concerned stock exchanges.

7.      Hold the general meeting and have the Special resolution passed.

8.  In the case of a listed company, forward a copy of the proceedings of the general meeting to the concerned stock exchanges.

9.    File with the ROC, Form MGT - 14 along with a certified copy of the resolution, the explanatory statement annexed to the notice of the general meeting at which the resolution was passed and copy of altered Memorandum of Association and Articles of Association, within thirty days of the passing of the resolution along with the prescribed filing fee.

10. Give notice in compliance with the provisions of section 64 of the Companies Act, 2013, of the consolidation of the shares of the company, to the Registrar in Form SH – 7, within thirty days of the passing of the resolution. The Registrar will record the alteration in the memorandum of the company.

11. In the case of a listed company, forward to the concerned stock exchanges copies of all the notices sent by the company to its members with respect to the alteration of the conditions in the memorandum of association and six copies (one of which must be certified) of such amendments to the memorandum of association as soon as they are adopted by the company in general meeting.

12. Issue necessary stock certificates in exchange of share certificates.

13. Remove the names of the persons from the register of members of the company to whom stock has been issued in exchange for the shares.

14. Make necessary alterations in all the copies of the memorandum of association of the company lying in the office of the company so that no unaltered copy is issued to any person.

Related Post :

Ordinary Resolution for Conversion of Shares Into Stock

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