Stock Ledger: What Is It And Why It’s Important For A Corporation

What is a stock ledger?

What is included in a stock ledger?

Why is it important to keep a share ledger?

In this article, we will discuss all there is to know about a corporation’s stock ledger so you know its purpose, its importance and what information you should maintain in it.

Are you ready?

Let’s get started…

Stock ledger definition

The stock ledger is the record or register of a corporation’s stockholders.

Typically, the stock ledger is kept in the corporation’s minute book and contains relevant information regarding company stock transactions.

Here are some of the information you will find in a company’s stock ledger:

  1. Name of stockholder
  2. Address of stockholder
  3. Number of shares issued to each shareholder
  4. Type of shares issued to each shareholder
  5. Stock certificate number
  6. Date the shares were issued
  7. Date the shares were transferred or cancelled 
  8. Total outstanding number of shares issued to a shareholder
  9. Consideration paid for the shares

In a nutshell, when you consult a shareholder ledger, you want to know who has what type of shares in your company and for how many shares.

Stock ledger template

Depending on the needs of your company, you can adapt your stock ledger to reflect the information you consider useful to your business.

The stock ledger is an internal corporate record.

The stock ledger handled by a public international organization with millions of stockholders will be kept differently from a small private company with a few shareholders.

So, how do you make a stock ledger?

To help you get started, we provide you with a standard stock ledger template that should fit the bill for many small and medium-sized corporations.

Large organizations with billions of shares outstanding and millions of shares trading hands daily will typically outsource the work to a stock transfer agent and registrar.

For those who will handle the stock ledger themselves, there are many stock ledger formats to choose from but they all contain the same essential information about the company stockholders.

By updating your stock ledger every time there is a stock transaction, such as stock issuance, stock transfer or stock cancellation, you will make sure that you have an accurate and up-to-date reflection of all stockholders in your company.

Why is a stock ledger important

Keeping a stock ledger is crucial for a corporation to ensure it can respond to audit inquiries, maintains a desired legal status and for its governance purposes.

Help with audit inquiries 

A corporation should keep track of all its shareholders in case of a regulatory audit or tax audit.

At any point in time, if the company is audited by the government or the authorities, it must be in a position to produce its stock ledger and clearly identify the shareholders behind the company.

This sounds evident but its extremely important for many reasons.

For example, if the tax authorities wish to audit the company to see how much money was paid out to the shareholders, it must be able to quickly get the list of the shareholders per class of shares.

In other cases, company shareholders may have used the corporation in violation of the law and the authorities may want to identify the shareholders of the company in question.

There are many reasons when a company must produce its stockholder ledger to comply with the law or for audit purposes.

Preserving legal status

The company must maintain its shareholder ledger to preserve a private status under the applicable securities laws.

A private company and a public company have different legal obligations under applicable securities laws.

A public company is required to produce financial statements and submit legally mandated documents and information to its shareholders.

This can get quite expensive.

A private company on the other hand is exempt from some of the strict obligations imposed on public companies.

Small or medium-sized corporations who do not intend to be considered a public company must make sure to keep a proper shareholder ledger to ensure they preserve their private company status under the applicable securities laws.

Company governance 

A stock corporation is fundamentally owned by its shareholders.

To know who are the shareholders and the percentage of control or ownership they have in the company, you need to keep a stock transfer ledger.

Consider a public company where millions of its shares trade hands every day.

Managing the stock transfer ledger becomes critically important in such an instance. 

If you don’t know who are the shareholders of your company, how would you know who may be entitled to dividends?

Who can vote at the company’s annual shareholder meeting or for a special resolution and how many votes do they have?

How will the board of directors of the company know which stockholders must approve an important resolution affecting the company?

This is where the stock ledger is essential to be maintained accurately and up-to-date.

Who maintains the stock ledger of a corporation 

The stock ledger or share ledger is held by the corporation’s secretary along with all other corporate documents and records.

The corporate secretary must make sure that the company’s share ledger accurately reflects the stockholders of the company at all times.

In large and public organizations, corporations will outsource their stock ledger maintenance to third-party service providers.

For example, companies like Computershare TrustAmerican Stock Transfer & Trust Company or Equity Stock Transfer company are known as stock transfer agents.

The stock transfer agent will maintain the stock ledger of a public organization and perform the following services:

  1. Stock issuance
  2. Stock transfers
  3. Stock repurchases
  4. Stock cancellations
  5. Stock recordkeeping 
  6. Monitoring of stock ledger to prevent unauthorized stock issuances
  7. Payment to stockholders on behalf of the company
  8. Act as an intermediary between the company and its stockholders
  9. Acts as a stock repository 

Large organizations spend millions of dollars with stock transfer agents to ensure they have a proper shareholder ledger to ensure they can function properly in the markets.

What does the stock ledger include

The stock ledger includes essential information about the shareholders of the company, the class of shares and the number of shares held by the stockholders.

Let’s look into the details of what’s included in the stock ledger.

Shareholder identification

The shareholder’s name and address must be recorded.

This will tell you who is the owner of the shares in your company.

Depending on the applicable securities laws, the relationship of the shareholder with the company and the shareholder’s level of sophistication can have an impact on whether a company can be considered public or private.

Class of shares

The articles of incorporation of a company can authorize a company to issue different classes of shares.

For example, a company can have common shares, Class A shares and Class B shares.

Each class of shares will entitle the shareholder to different rights.

As a result, companies must track their shareholders by class of shares.

Number of shares

It’s important to have a clear picture of how many shares are issued by the company at any given time.

The share ledger must accurately indicate how many shares are issued to any particular shareholder per class of shares.

The corporation must also be able to calculate the total number of shares issued per class of shares.

Certificate number

Every certificate issued to a shareholder must bear a unique certificate number.

The stock certificate number acts as a unique identifier of the stock certificate issued to a shareholder.

In case the shares are transferred or cancelled, the company will take note of which stock certificate has been cancelled or transferred. 

A cancellation date must then be recorded in the shareholder ledger.

Issuance date

A company can issue shares from treasury to a shareholder or a person can acquire issued and outstanding shares from an existing shareholder.

When the shares are issued from treasury, the stock ledger will reflect the stock issuance date.

When the shares are transferred or purchased from an existing shareholder, the stock ledger will reflect the issuance date for the new shareholder and a cancellation date for the previous shareholder.

Cancellation date

The cancellation date is the date that the stocks are cancelled.

Shares can be cancelled when a company buys back its shares, a shareholder transfers his or her shares to someone else or when the shares are sold.

The cancellation date marks the last day the shareholder was entitled to exercise any rights in the company or get dividends if any dividends were declared.

Other terms for stock ledger

The stock ledger can be referred to in many different ways.

Here are some of the common terms we see when referring to a stock ledger:

  1. Stock book
  2. Stock transfer ledger
  3. Corporate stock ledger
  4. Share ledger
  5. Stockholder ledger
  6. Shareholder ledger

These are all terms referring to the same thing.

Takeaway 

A stock ledger is one element of internal corporate records companies need to maintain.

A stock ledger provides crucial information about the stockholders of the company such as:

  1. Stockholder name
  2. Stockholder address
  3. Stockholder’s certificate number
  4. Date the person became a stockholder
  5. Number of shares registered to each stockholder
  6. Class of shares held by the stockholders

It’s important to keep an up-to-date and accurate record of the company’s shareholders so the company can properly function without legal risk or exposure.

For example, depending on the type of stock held by a shareholder, they may be entitled to dividends or not at all.

If you are a public company with billions of shares issued and outstanding and millions of shares trading hands every day, how do you know to whom you must pay dividends?

That’s when you need to make sure you have a stock register or stock ledger accurately updated at all times so you know who is entitled to dividends and for how much. 

Smaller organizations may not have a lot of challenges in maintaining a stock ledger as there may be very little movement in their stockholder base.

For larger organizations, it is crucial to maintain an accurate record of the stockholders.

We hope this article helped you better understand a corporation’s stock ledger.

Do you maintain a stock ledger for a private or public company?

We would love to get your feedback on your experience.

Drop us a comment!