An investor is issued a share certificate also known as a stock certificate when they buy shares of a publicly-traded company. The share certificate serves as a receipt for the stock purchase. The certificate includes important details about the investor’s stock ownership such as the number of shares purchased.
Are Stock Certificates Necessary to Prove Ownership?
In most cases, investors never receive a physical share certificate as the process is managed electronically by the Central Securities Depository (CSD). Electronic share transactions and processes enable automated proxy voting, dividend distributions, and other pertinent notifications for the shareholder.
Even without a physical share certificate, a stock owner is still the owner of the stock. The owners will receive dividend payments and other notices. However, the stock certificate is required if the owner decides to sell the shares. The owner must sign over the stock certificates in much the same way that they would endorse a check.
Replacing a Stock Certificate
In some cases, however, an investor may choose to hold a physical share certificate, which details their share ownership. A share certificate can be replaced if it is lost, stolen, or damaged. In order to replace the physical certificate, the shareholder will need to contact the company's stock transfer agent.
The corporation's investor relations department should be able to provide a shareholder with information on how to contact the transfer agent. A transfer agent records the shareholders of a company and how many shares an investor owns, the stock certificate numbers, and the contact information for the stock owner.
One the transfer agent is notified of the loss, the agent will place a "stop transfer" on the certificate to prevent others from cashing the certificate in if it is found. The stop-transfer is much like the stop payment that an individual might place on a check at their bank. The transfer agent will also notify appropriate parties to alert them that the certificate has been lost.
Steps the Shareholder Must Follow If a Certificate is Lost
Each company’s procedures may vary. However, there are some steps that the shareholder must follow. First, the shareholder must describe the loss and any facts surrounding the loss in an affidavit. Second, the shareholder may be required to purchase an indemnity bond. The purpose of the bond is to protect the corporation and the agent in case the lost certificate is somehow redeemed by another party at a later date. (Think of it simply as additional insurance). Note: The cost of this bond is typically 1% to 3% of the value of the shares.
When the necessary information has been provided and the necessary steps are taken, a new certificate will be issued.
Losing a share certificate can be remedied by contacting the company's investor relations department. This department will inform the shareholder how to contact the transfer agent who can place a stop payment on the shares and reissue a new certificate. The shareholder may have to complete an affidavit and purchase an indemnity bond.