Finance & Investment

Learn Finance with CA: Q&A on Shares vs Stocks

By Yunus Ibrahim

Question 1: How are shares different from stock?

Answer : Shares represent ownership in a single  company while stocks signify ownership in different company.

Stocks means a portfolio or group of shares.

Question 2: What is meant by conversion of shares into stock?

Answer : The conversion of shares into stocks implies can be views from the point of  conversion price. Conversion price  is the price per share at which a convertible security, such as corporate bonds or preferred shares, can be converted into common stock. The conversion price is calculated from the conversion ratio and determined when the convertible security is issued.

If a company convert shares into stocks, then it would have less available shares in the market for subscription.

Question 3 : What are the advantages of converting shares into stock?

Answer: Receive dividends

                  Sell at higher prices for growth stocks

                  Exercise voting rights.

                 Have more right to decision making

Question 4: Wouldn’t these be the advantages of converting debenture into stock/shares?

A member of a company who is converting his shares into stock as envisaged by Section 105 of CAMA can already do all these. That is, he is entitled to dividend, attends AGM or any other meeting he’s entitled to and can vote.

So what are the advantages to an existing shareholder seeking to convert his shares into stock.

Answer : firstly, the highlighted points are already existing as the advantages enjoyed by a shareholder and could be enjoyed by a debenture holder converting his security into shares. However, this could happen in another form.

In terms of dividend, the shareholder would he expected to receive higher amount when compared to small shareholders.

Furthermore ,the shareholder converting his shares into stocks has been able to  increase his ownership rights and can sell such stocks at higher prices if the firm is a growth company eg stocks in Facebook, amazon etc.

Increasing the capacity of his shares comes with additional benefit of holding majority of the company’s equity. Thus, he might be able to affect decisions reached.

So, the advantages of an existing shareholder in converting shares into stocks are:

It helps protect / grow  wealth

Diversify risks/ portfolios

Stand a chance to receive more income since the number of shares owned has equally increased. If the  company is able to boost revenue in this case,thus the EPS will be high, and that signifies more income.

The act of conversion also has it’s own downside to both parties , I mean the company and shareholders.

Question 5: Why would some members want to convert their shares into stock?

Answer : Increase participation and ownership in a firm.

Question 6 : Can his stock also imply a bundle of different classes of shares in the same company? 

For instance, preference and ordinary shares. Could those be organised into a stock?

Answer : Yes, definitely.

Addition of the different group of shares in same company can be referred to as stocks.

Stock represents ownership and

We have common stock as ordinary shares , preferred stocks , convertible and nonconvertible stocks.

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