How Does Stock Conversion Work?

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The shareholder has the right to vote on whether or not to go forward with stock conversion, which may result in an exchange for stock with the new company. Find out how to use a convertible bond during stock conversion with help from a personal asset manager in this free video on investing in the stock market and money management.

Part of the Video Series: Stock Market
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Video Transcript

Hi I'm Roger Groh and we're here today to talk a little bit about stock conversion and how it works. Did you ever own a company that was bought out by another company where they offered you shares in their company for the existing shares that you owned? Well the first thing that happens is you, the shareholder, have the right to vote on whether or not to go forward with that and under the corporate rules if enough people vote yes the transaction occurs. Physically then the stock certificates of the shareholders and the company being bought out are given to the new company and exchanged for stock in the new company. New certificates are then issued either in electronic form or physical form and your name is then entered as the new owner in this buyer of your old company. There may be other things where that happens also. For instance if you own a convertible bond and you elected to convert the stocks within that bond, well in that instance you issue a notice to the company saying you would like to convert and they are then obligated to do that under the terms of the indenture of the bond. The same goes for a convertible preferred stock where you have the right to convert or not to convert and you simply notify the company that you would like to and then they are obligated to go forth and do it. So I'm Roger Groh and that's a little bit about how stock conversion works and thank you for spending a few minutes with me.

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