What is a stock certificate?
How do you issue stock certificates?
What information is included in share certificates?
We will look at what is a stock certificate, its history, stock certificate meaning, its content, physical stock certificates and electronic certificates, how to issue one, how do they look like, examples and more.
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What is a stock certificate
Corporate stock certificate
A stock certificate is a legal document certifying that a shareholder owns stock in a corporation.
In other words, the share certificate represents a shareholder’s proof of stock ownership.
A stock certificate can also be called:
- Certificate of share
- Certificate of stock
- Share certificate
- Shareholder certificate
Stock certificate definition
According to Investopedia, a stock certificate is defined as:
A stock certificate is a physical piece of paper that represents a shareholder’s ownership in a company.
What is notable with this stock certificate definition is that it is a document that confirms a person or entity’s share ownership in a company.
Proof of stock ownership
For centuries, corporations issued stock certificates to investors to prove their investment in the corporation.
Following an initial public offering or the purchase of stock in a company, the corporation would issue a paper stock certificate to the investors in acknowledgment of their investment.
As such, the physical share certificate proved the investor’s status as a shareholder in the company.
According to the Journal of Economic History in “Completing a Financial Revolution: The Finance of the Dutch East India Trade and the Rise of the Amsterdam Capital Market”, the Dutch East India Company was the first company in recorded history that issued stock certificates back in 1606.
The company’s shares were issued as a recognizable asset for the investors.
In modern times, public corporations maintain an electronic register of their shareholders and no longer issue a physical stock certificate (we’ll cover that below, be sure to keep reading).
Content of stock certificate
A stock certificate will typically include the following information:
- Shareholder’s name
- Date the stock certificate was issued
- Number of shares issued to the shareholder
- Type of stock owned
- Certificate identification number
- Corporate seal
- Signature of company representatives
The company representative signatures are usually printed on the stock certificates to avoid having them sign thousands, if not hundreds of thousands, of shareholder certificates.
Stock certificate form
For the past several centuries, stock certificates were issued in a physical form.
However, with the development of technology, companies no longer need to issue stock certificates but keep an electronic record of their shareholders.
Physical stock certificate
For a long time, paper stock certificates were issued by corporations to shareholders until things started to change with the digital age.
The form of physical stock certificates was crucial to protecting the shareholder from fraudulent replication and counterfeiting activities.
To minimize the risk of fraud, stock certificates were (and still are) designed with overt and covert security features.
The process by which stock certificates were designed and the paper fabric creation remains a secret process (similar to the secret process of printing currency).
There are only a few companies in the United States legally authorized to produce and print the actual blank stock certificate used by corporations to issue shares of stock to shareholders.
For instance, the stock certificate size is bigger than your standard “letter” size paper (8.5 by 11 inches), it has intricate patterns drawn on it (similar to the intricate pattern of hard cash), is made of a special type of paper and has watermarks.
The Disney Corporation was a company that took great care in crafting their stock certificates to illustrate their famous Disney characters.
They are the last major public corporation to issue Disney stock certificates back in 2013 and have gone electronic ever since.
Electronic stock certificates
In today’s digital age and computerized processing, physical stock certificates have been abandoned by corporations.
Instead, they keep the record of their shareholders electronically in an electronic register also known as a “book-entry securities”.
In this manner, the electronic registry proves a person or entity’s stock ownership in a company thereby eliminating the need to issue a stock certificate to the shareholder.
Although there are no electronic stock certificates issued, a shareholder receives a statement (just like a bank statement) where the information about their stock ownership is confirmed.
The modern electronic record-keeping system used allows companies to accurately keep a record of their shareholders, minimize the risk of fraud, perform transfers efficiently and quickly and have a real-time view of their shareholder base.
Issuing stock certificate
To say “issuing” a stock certificate, we are referring to the process of “printing” or “registering” a corporation’s stock certificate to a particular person or entity (the shareholder).
When a person acquires shares in a company (whether it be common shares, preferred shares or other types of securities), the company “issues” a piece of paper (the stock certificate) to confirm the buyer’s status as a shareholder and for how many shares.
Today, public corporations no longer need to issue share certificates to their shareholders but rather record a person or entity’s stock purchase in an electronic shareholder registry managed by an electronic communication network (ECN) or Direct Registration System (DRS).
It is easier and a less costly way to manage thousands, if not millions of shareholders, of a corporation.
However, if you absolutely need that a public corporation issues a stock certificate, you can request one directly from the company, your stockbroker or the company’s transfer agent.
You can also reach out to them in case you’ve lost a share certificate and you need to prove stock ownership.
However, you may have to pay a fee to get the certificate.
Stock certificate example
Companies took great pride in creating a visually stunning stock certificate to please their shareholders.
A certificate of stock looked like an artwork.
For many shareholders, stock certificates represented signs of wealth and prestige.
They adored the fancy designs and ornate engravings.
In some cases, shareholders would even show off their investment by framing their paper stock certificates on their wall.
Here are some stock certificate examples:
Stock certificate template
Most major public companies no longer print actual stock certificates to their shareholders.
However, private companies, small and medium businesses or startups may still need to issue stock certificates to their shareholders.
There are stock certificate templates that can be purchased through different vendors.
Some vendors provide basic templates downloadable online for free (although it may have a watermark with their brand).
You can also buy stock certificates online where you can select a type of certificate having elaborate design or some form of generic artwork.
Stock certificate FAQ
How to issue stock certificates
Let’s look at how to issue stock certificates in a private company.
To issue stock certificates, there are a few steps you need to complete.
First, you need to have a person interested to subscribe to the shares of your company.
Then you need the company’s board of directors to approve the issuance of shares to the prospect shareholder.
You may need the approval of the company shareholders as well depending on rights granted to them in a shareholder agreement or by law.
Then you will need to actually issue (or print) the stock certificate.
You will need a stock certificate template where you will complete the information relating to the shareholder.
Finally, the company’s president or legal representative must sign the certificate of stock.
There you have it, you issued a stock certificate!
How to transfer stock certificates
To transfer a stock certificate, assuming that you have obtained the approval of the corporation’s board of directors and shareholders, as the case may be, you will need to complete the share transfer form found on the back of your stock certificate.
On the share transfer form, you will indicate the information of the transferee (and you are the transferor).
You can also find a share transfer form template online (or securities transfer form) and use that as your legal transfer document.
How to fill out the back of a stock certificate
It’s pretty simple to complete the back of a stock certificate.
Typically, the back is completed to transfer the shares to someone or to a brokerage firm.
If you are transferring to an entity or person, you must write their name (make sure the spelling is correct), write your own information at the relevant places and sign.
If you are transferring your shares to a brokerage firm so they deposit it in your account, you’ll need to make sure the stock certificate is printed with the correct spelling of your name, sign the back where you must endorse and indicate the name of your brokerage firm to whom you are transferring the certificate.
What is issued as proof of stock ownership
As proof of stock ownership, stock certificates are issued to prove that a person or entity owns shares in a corporation.
This can be common stock, preferred stock, Class A, Class B or other types of securities issued from a company’s share capital.
A paper stock certificate represents a shareholder’s investment in a company as is viewed as an asset.
Today, public companies no longer issue shareholder certificates but rather record their investment in an electronic stock registry.
Does my company need to issue stock certificates
Most public companies have abandoned the issuance of stock certificates.
Instead, the identity of their investors and their investment is registered directly in their books electronically.
For private companies and startups, some states no longer require the issuance of a physical piece of paper to prove stock ownership.
In states like Delaware, you are authorized to issue “uncertificated shares” representing an accurate stock ledger of the company’s shares issued.
When a person acquires shares in a private company, they are issued a written confirmation or notice related to their share ownership in the company.
To be authorized to issue uncertificated shares, the company’s board of directors must approve the concept and include the relevant provisions into the company’s bylaws.
What is included on a stock certificate
Share certificates typically include the following information:
- Shareholder’s name
- The date the stock certificate was issued
- Number of shares issued to the shareholder
- Type of stock owned
- Certificate identification number
- Corporate seal
- Signature(s) of company representatives
Is my stock certificate worth anything
If you have an old stock certificate, chances are that it may not have any intrinsic value as the company may have gone out of existence.
However, there are some lucky ones out there who may have a stock certificate of an active company that has grown over time.
Imagine someone finding a stock certificate of IBM from back in 1914 or Bell Canada in the early 1940s!
Even one share of IBM issued in 1914 can potentially be worth millions today.
How do you cash in stock certificates
To “cash in” your stock certificates, you must essentially sell them to someone, either another investor or directly back to the company.
The value of your shares will be determined by the number of shares you have in a company along with the company’s market valuation.
For public companies, the value per share is defined by the market on a daily basis.
For private companies, the are a few ways you can establish the value of the company shares:
- Have the company’s business evaluated
- As per a formula defined in a shareholder agreement
- As per the valuation offered by the company’s board of directors
- Upon mutual agreement between the company and shareholder
Take note that the share valuation must respect the laws of your jurisdiction so that a shareholder is not adversely affected or oppressed.
What does stock certificate look like
Here is what a traditional common stock certificate looked like:
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