What Is a Share Certificate?
A share certificate is a written document signed on behalf of a corporation that serves as legal proof of ownership of the number of shares indicated. A share certificate is also referred to as a stock certificate.
- Share certificates are documents issued by companies that sell shares in the market.
- A shareholder receives a share certificate as a receipt of his or her purchase and to reflect ownership of a specified number of shares of the company.
- In today's financial world, physical share certificates are issued only rarely, with digital records replacing them in most cases.
- A share certificate that is damaged, lost, or stolen can be reissued with a replacement certificate in respect of the same number of shares.
- Issuing paper stock certificates is labor-intensive and represents a big expense for the company.
- Ownership of paper stock is very difficult to keep up with, as shareholders can pass the certificates to someone else without notifying the company.
- If your share certificate is lost, accidentally destroyed, or stolen, you should immediately contact the transfer agent and request a "stop transfer."
- Whether someone is transferring a stock certificate on death or electronic shares on death, the tax implications are the same.
Understanding Share Certificates
When companies issue shares in the market, shareholders who buy in are issued a share certificate. The share certificate basically acts as a receipt for the purchase and ownership of shares in the company. The document certifies registered ownership of shares from a particular date.
Key information on a share certificate includes:
- Certificate number
- Company name and registration number
- Shareholder name and address
- Number of shares owned
- Class of shares
- Issue date of shares
- Amount paid (or treated as paid) on the shares
In the UK, The Companies Act 2006 directs that a company must issue a share certificate when any shares are allotted (issued). The company must issue a share certificate within two months of the issue or transfer of any shares. Companies may issue just one certificate for all the shares issued or transferred at a particular time, except if a shareholder requests separate certificates.
Sometimes a shareholder with a stock certificate can give a proxy to another person to vote the shares in question. Similarly, a shareholder without a share certificate may give a proxy to another person to allow them to vote for the shares in question. Voting rights are defined by the corporation's charter and corporate law.
A share certificate that is damaged, lost, or stolen can be reissued with a replacement certificate in respect of the same number of shares. The shareholder in such a case must return the damaged document to the company before a replacement can be issued. At this time, the shareholder may also exercise the right to be issued a single certificate or separate certificates.
Historically, share certificates were required for proof of entitlement to dividends. Each time a certificate was presented, the receipt for the payment of dividends was endorsed on the back. This way, all records of dividend payments were attached to the document.
In the digital age, investors rarely use physical share certificates and instead rely on electronic proof of ownership.
Disadvantages of Issuing a Share Certificate
There are several disadvantages of issuing a share certificate.
From the company's perspective, the primary drawback comes down to time and money. Issuing paper stock certificates is labor-intensive and represents a big expense. In fact, businesses usually need an entire team dedicated strictly to managing the share certificate system.
There is a tremendous amount of tedious clerical work involved in maintaining a stock certificate system. For example, all transactions, such as a merger or spinoff, can only proceed when the paper certificates are signed and mailed to the company. Also, compliance becomes much more difficult to address.
Moreover, ownership is very difficult to keep up with, as shareholders can pass the certificates to someone else without notifying the company. It all adds up to a significant amount of back-office work to verify identities in order to sign off on the transfer of ownership. In other words, the company has to keep track of the shares at all times. This is typically done through a computer system.
Finally, if a shareholder has their paper certificate lost or stolen, it means a lot of work for the company. Specifically, the business has to find the old shares, verify ownership, put a "stop" on the paper certificates, and then issue new paper certificates. Obviously, this process is also a headache for the shareholder.
The bottom line is that documenting, tracking, and verifying transactions with paper stocks is very challenging.
The Dutch East India Company issued the first stock certificate in 1606. It was worth 150 Dutch Guilder.
Today, in modern financial markets, individual investors rarely take physical possession of their share certificates. In fact, some countries, such as Sweden, have completely abolished the issue of share certificates as proof of share ownership in a company and have streamlined the process of registering owners via electronic registration.
In the United States, the Central Securities Depository (CSD) is responsible for electronically holding shares, either in certificated or uncertificated (dematerialized) form, so that ownership can be easily transferred through a book entry rather than the transfer of physical certificates.
A share certificate can be in either a registered form or bearer form. A registered share certificate is only evidence of title ownership, while a bearer share certificate, now uncommon, entitles the holder to exercise all legal rights associated with the stock.
Many share certificates, especially older and rarer specimens, have become extremely collectible for their historical context and the beauty and intricacy of their design. "Scripophily" is the collection and study of share certificates and other similar financial documents. Similar to stamp collecting or banknote collecting, a share certificate's value is dependent on its condition and age.
What Are Share Certificates FAQs
What Are My Old Share Certificates Worth?
Never just throw away your old share certificates. They can still be worth something. Here are a few steps you can do to help determine their value:
- Contact your stockbroker to look up the share certificate's CUSIP number
- Figure out whether the company is still publicly traded
- Call the share certificate's transfer agent (the agent should be listed on the certificate)
- Use a paid service to research your stock's history
What Do I Do If I Lost My Original Share Certificate?
Even without the physical share certificate, you are still the rightful owner of the stock and have a claim to all of the rights of being a shareholder.
If your share certificate is lost, accidentally destroyed, or stolen, you should immediately contact the transfer agent and request a "stop transfer." This prevents ownership of the stock certificate from being transferred to another person. Your stockbroker might also be able to help you with this process.
You will be able to get a new replacement certificate. But typically, companies will first require you to do the following:
- Make a statement of facts surrounding the loss in an affidavit
- Purchase an indemnity bond to protect the company against the chance that the lost certificate may be presented at a later date
- Request a new certificate before an innocent purchaser requires it
If Stock Certificates Are Transferred on Death, What Is the Tax?
Whether someone is transferring a stock certificate on death or electronic shares, the tax implications are the same. That is, you are not liable for taxes on the shares you inherit when someone dies. But you might be liable for the taxes if you sell them.