Stock and Shares of a Company | Capital | Accounting

In this article we will discuss about stock and shares of a company. Also learn about the difference between them.

Stock:

When all the shares of a company have been fully paid up, they may be converted into stock if so authorised by the Articles, as per Sec. 94(1) (c). It is another kind of unit of capital of a company. It also denotes fractional amount of the consolidated capital of a company.

Practically, it is the sum total of fully paid up shares, consolidated and divided just for the purpose of convenient holding into different parts. Conversion of stock is made because it is a convenient method of denoting the capital of the company.

It does not, however, affect the rights of the members. It should be remembered that stock can validly be issued only when the shares are fully paid-up. When shares are converted into stock, notice must be given to the Registrar. Consequently, the Register of members shall then show the amount of stock held by each member and not the amount of share.

Shares:

Capital is essential for a trading concern. A company collects capital by inviting the public to buy its shares through a document known as prospectus. The prospectus must not conceal any material fact nor misrepresent the actual state of affairs. The capital is usually divided into different units of fixed amount. These units are called ‘Shares’.

The term ‘Shares’ is defined in Sec. 2(46) of the Companies Act as “Share means a share in the capital of a company, and includes stock except where a distinction between stock and share is expressed or implied”.

A Share is an interest of the shareholder in the company, measured by a sum of money, for the purpose of liability in the first place and of interest in the second place. A share is not a sum of money but is an interest measured by a sum of money, and made up of various rights contained in the contract. A Share indicates the pecuniary interest of the shareholders and their rights and liabilities.

Shares with Differential Rights:

Section 88 of the Companies Act which prohibited the issue of equity shares with disproportionate rights as to:

(a) Dividend,

(b) Voting rights

(c) Otherwise,

has been deleted by the Companies Amendment Act 2000. The amended Act has inserted Section 2(46A) which permits a company to issue equity shares with disproportionate rights in accordance with the provisions of section 86 which is also amended in the year 2000.

According to section 86, now issues of shares capital of a company limited by shares shall be only of two kinds viz:

(a) Equity Share Capital with voting rights, or with differential rights as to dividend, voting or otherwise in accordance with such rules and subject to such conditions as may be prescribed and

(b) Preferential Share Capital.

The issue of shares with differential rights should be authorised by the Company’s Articles. The company should also get the approval of share-holders by means of a resolution in their general meeting. Besides, the company should have distributable profits for three financial years preceding the year of issue. It should not have also committed any default in repaying its deposits or interest thereon, on the due date, or redeem its debentures on the due date, or pay dividends.

The members holding shares with differential voting rights are also entitled to bonus shares, rights issue and other rights which a shareholder enjoys. However, their right to vote is limited only to the rate or proportion as is permitted by the company. The shares with differential voting rights shall not exceed 25% of the total issued capital of the company.

Difference between Stocks and Shares:

1. Stocks are always fully paid up, whereas shares may or may not be fully paid up.

2. Stocks are not numbered, whereas shares are serially numbered.

3. Shares may be issued, when a company is incorporated but stocks cannot be issued under such circumstances. Only fully paid shares can be converted into stock.

4. Stock is convenient method of transferring because it can be issued or transferred in fractional parts, whereas shares cannot be divided below the face value of each share.

5. Shares are of equal nominal value but stocks may be divided into unequal amounts.

6. Shares are always registered and not transferable by mere delivery but stocks may be registered or unregistered: and unregistered stock can be transferred by mere delivery.

7. Shares are in units whereas stock is in the aggregate form. A share is one of a number of individual units into which the capital is divided. Stock is the capital in the form of a fund which may be divided into any desired amount.