Definition of Stock Certificate
A stock certificate is a document issued by the company issuing stocks to the stockholders representing the ownership of the stockholder in the company to the extent of the number of shares indicated in the certificate. It is proof of an investor’s holding in the company’s shares.
It must be issued by the corporations that give shares to the public. It indicates the number of shares a person owns and other details relevant to the issued shares. It acts as an acknowledgment by the company about the ownership of the mentioned number of the company’s shares by the person to whom the share certificate is issued. It contains details such as certificate number, company name & registration number, shareholder’s name & address, number of shares issued, par value per share, the amount paid on shares, class of shares, and the date of issue.
Nowadays, many companies do not issue physical certificates; digital certificates or documents are issued.
Example of Stock Certificate
A sample stock certificate is produced below for better clarity.
This is to certify that Ms. Linda residing at (address), is the owner of 100 shares of the par value of $1000 each of Class A shares of XYZ Ltd issued on 01.01.2020. The shares are transferrable in person or by an attorney only in the books of accounts of the company and upon surrender of this stock certificate.
In witness of which XYZ Ltd has caused the certificate to be signed by
Information on Stock Certificate
As you must have been in the above sample itself, a stock certificate contains the following details:
- Company Details: The details of the company issuing such stock certificates are mentioned, and it contains particulars such as the name of the company, its registration number, and its registered address.
- Stock Owner Details: The details of the person to whom the certificate is issued, i.e., the owner of the shares, are mentioned. The details include the name and address of the person.
- Share Details: The certificate needs to mention the details of the shares for which ownership is given to the certificate holder. The number of shares issued, par value per share, class of shares issued, and the total amount are shown on the certificate.
- Other Details: Some details such as certificate number, general conditions, and details of the person authorizing the certificate on behalf of the corporation are disclosed. The corporate seal is also affixed to the physical certificate.
How to Issue Stock Certificates?
They can be issued as physical certificates or as electronic records. For private companies, stock certificates can be given as physical documents per the sample discussed above. An authorized signatory authorizes the certificates with a signature and affixes the company’s common seal on physical certificates. However, for public companies, it is impossible to issue stock certificates in material form due to the number of shareholders involved. The certificates are maintained as electronic records in a computerized book-entry stock exchange system where the investors trade the shares.
Some of the advantages are given below:
- It is proof of the investor’s ownership of the mentioned number of shares in the company.
- It indicates and confirms the cost at which the shares are purchased, the type of shares purchased, and the date of the issue of shares. These details help the investor justify the share cost details at the time of the tax return.
- It establishes an investor’s claim over the shares’ ownership in case any future dispute arises.
Some of the disadvantages are given below:
- The physical stock certificates are to be maintained carefully since the investor would have to spend extra money to get the certificate issued if they are lost.
- Printing physical certificates waste paper and resources of the company.
- It is difficult to maintain such certificates for the investor, and every time they want to refer to the details of their holdings, they need to refer to the stock certificate, which becomes cumbersome. That is why having electronic records is preferred.
Physical stock certificates are becoming less prevalent now, and their use is limited to private companies. The purpose of issuing stock certificates is to establish an investor’s ownership in the said number of the company’s shares. The investors use it as an acknowledgment or a receipt of their stock holdings in the company.
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