Definition of Stock Certificate
A stock certificate is a document that is 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 acts as proof of the holding of an investor in the company’s shares.
It is required to be issued by the corporations that issue shares to the public. It indicates the number of shares that a person owns along with 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, physical certificates are not issued by many companies, and instead digital certificates or document is 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 whereof 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 certificate are mentioned and it contains particulars such as the name of the company, its registration number, and 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 is shown on the certificate.
- Other Details: Some other details such as certificate number, general conditions, and details of the person authorizing the certificate on the behalf of the corporation are disclosed.The corporate seal is also affixed to the physical certificate.
How to Issue Stock Certificates?
It can be issued as physical certificates or as electronic records. For private companies, stock certificates can be issued as physical documents as per the sample discussed above. An authorized signatory authorizes the certificates with signature and also affixes the common seal of the company on physical certificates. However, for public companies, it is not possible to issue stock certificates in the physical form due to a number of shareholders involved. The certificates are maintained as electronic records in a computerized book-entry system of the stock exchange where the shares are traded by the investors.
Some of the advantages are given below:
- It act as proof of the ownership of the investor 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 that are purchased, and the date of the issue of shares. These details help the investor to justify the cost details of the shares at the time of the tax return.
- It establishes an investor’s claim over the ownership of the shares in case any dispute arises in the future.
Some of the disadvantages are given below:
- The physical stock certificates are to be maintained carefully, since if they are lost the investor would have to spend extra cost to get the certificate issued.
- Printing physical certificates waste paper and resources of the company.
- It is difficult to maintain such certificates by 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 ownership of an investor 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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