A stock certificate is a document that proves ownership of a certain number of stocks or shares. Even though most companies issue stocks digitally, some investors prefer to have a paper trail, which this document can provide.
What Is a Stock Certificate?
A stock certificate is a legal document proving and recording ownership of a certain number of shares of stock in a corporation. The authorized officers of the corporation, usually the president and the secretary, should sign the share certificate to validate it.
With proof of ownership, the shareholder can get access to annual reports, declare dividends, and receive invitations to shareholder meetings. Additionally, holding a physical copy of the certificate may make it easier for the investor to get a loan on the value of the shares owned.
When Do Companies Use Stock Certificates?
Companies issue stock certificates to prove a shareholder owns a stock. Smaller companies with limited shareholders or investors tend to issue paper stock certificates.
What to Include in a Stock Certificate
A stock certificate contains the following essential elements:
- The name of the corporation
- The state of incorporation
- The date of incorporation
- The number and class of shares issued
- The registered certificate number
- The shareholder’s name
- The date the certificate was issued
- The signatures of authorized personnel
Here are some other useful details a certificate of stock might include:
- Corporate Seal: Some states require a seal to validate these certificates.
- Transfer Restrictions: Details on how the shareholder can transfer their shares.
What to Consider When Creating a Stock Certificate
Consider the following when creating your corporate stock certificate:
- Who is receiving the stock certificate
- What is the registration number of the stock
- When you’re issuing the stock
- Where the company was incorporated
- How many shares of stock and their value
Why Do Companies Issue Stock?
Corporations issue stock to expand and grow their operations. Issuing stock can help them raise capital to fulfill the following goals:
- Buy new equipment or real estate
- Develop new products
- Increase inventory
- Hire more staff members
- Pay off debt
- Prepare for an acquisition or merger
- Improve the company’s overall value
Ways to Obtain Stock Certificates
Shareholders can purchase stock and receive corporate stock certificates via the following methods:
Through a Brokerage
An investor can open a brokerage account and deposit funds. Then, when they find a company they want to become a partial owner of, they can place buy orders for the relevant stocks.
Most brokerage transactions are electronic, so shareholders won’t receive a physical stock certificate automatically. However, they can request one in some cases for a small fee.
Through the Issuing Company
An aspiring shareholder can go directly through the issuing company to purchase stock. This way, an investor doesn’t have to go through a brokerage, meaning they might be able to save on transaction fees.
The company that issued stock may distribute paper certificates to its shareholders upon request.
Through a Transfer Agent
If a shareholder already owns stocks digitally, they may be able to request paper certificates from a transfer agent. This individual maintains stock records and can assist with issuing a paper copy.
What to Do With Old Stock Certificates
Here are some options you have when dealing with old stock certificates:
Check Their Value
Check the value of an old stock certificate by researching the issuing company’s status. Determine if it has undergone mergers or acquisitions, as these events can impact the certificate’s value.
You may also consult with a financial advisor who can provide insight into the document’s value. If you discover it has some monetary value, you can initiate a sale or transfer it to a form of digital proof.
Keep Them as Collectibles
If a stock certificate is from a company that’s no longer operational, you don’t have to throw away your certificate immediately. In fact, it may have value as a collectible item. You may consider framing it to preserve its condition. You may also donate the document to an institution that stores educational or historical artifacts.
Check for Unclaimed Property
If you misplaced an old certificate and aren’t sure of its value, you can check with your state’s unclaimed property division. If someone turns over a lost stock certificate to the state, you may be able to reclaim its value and any associated dividends.
Stock Certificate Sample
Review our free stock certificate template to record a shareholder’s ownership of company stock. Download it as a PDF or Word file below:
Frequently Asked Questions
What happens to the value of a stock certificate if a company merges with another?
The value of stock certificates after a merger depends on the merger’s terms. Sometimes, a shareholder may receive shares of the new company at a predetermined exchange ratio. In other instances, they may receive cash, a combination of cash and stock, or another form of reimbursement.
Do stock certificates expire?
No, stock certificates don’t expire. As long as the company still exists, the certificate holder can prove they own shares of the company with this document. If a company has gone bankrupt, the stock certificate likely won’t have any monetary value.
Do I always have to issue a paper stock certificate?
You don’t usually have to issue a paper stock certificate unless the investor asks for one. Most investors can view online account statements with their broker. They can review this information to know how many shares they have in their portfolio.
