Stock certificate

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Baltimore and Ohio Railroad stock certificate, 1903

In corporate law, a stock certificate (also known as certificate of stock or share certificate) is a legal document that certifies ownership of a specific number of shares of stock in a corporation. In large corporations, buying shares does not always lead to a stock certificate (in a case of a small number of shares purchased by a private individual, for instance).

In the United States, electronic registration is supplanting the stock certificate. Companies are no longer required to issue paper certificates, and over 420 of the 7,000-plus publicly traded securities do not.[1]

Brokers may charge up to $500 for issuing a paper certificate, though this fee can be avoided by either holding share in street name (in the United States street name securities are securities held electronically in the account of a stockbroker, similar to a bank account) or registering shares directly with the stock transfer agent and having them issue the certificate.[2]

Another alternative to both paper and electronic registration is the use of paper-equivalent electronic stock certificates. Forty-seven states have enacted legislation equivalent to the Uniform Electronic Transactions Act, which formalizes equivalency for electronic signatures "in writing" requirements. This, together with the enactment of legislation permitting the use of "facsimile" signatures on certificates (such as in §158 of the Delaware General Corporation Law), has given rise to SaaS solutions[3] for private companies to create, issue and manage paper-equivalent electronic stock certificates.

In Sweden, share certificates have been largely abolished, people using electronic shares instead (which are either registered in the share owner's name or in the share owner's broker's name). Share certificates may exist in Sweden, but only if the shares are not listed on any stock exchange in Sweden, and the availability of share certificates has nothing to do with voting in shareholders' general meetings.

Sometimes a shareholder with a stock certificate can give a proxy to another person to allow them to vote the shares in question. Similarly, a shareholder without a share certificate may often give a proxy to another person to allow them to vote the shares in question. Voting rights are defined by the corporation's charter and corporate law.

Stock certificates are generally divided into two forms: registered stock certificates and bearer stock certificates. A registered stock certificate is normally only evidence of title, and a record of the true holders of the shares will appear in the stockholder's register of the corporation.

A bearer stock certificate, as its name implies is a bearer instrument, and physical possession of the certificate entitles the holder to exercise all legal rights associated with the stock. Bearer stock certificates are becoming uncommon: they were popular in offshore jurisdictions for their perceived confidentiality, and as a useful way to transfer beneficial title to assets (held by the corporation) without payment of stamp duty. International initiatives have curbed the use of bearer stock certificates in offshore jurisdictions, and tend to be available only in onshore financial centres, although they are rarely seen in practice.

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References[edit]

  1. ^ Matt Krantz (May 25, 2010). "Electronic records are replacing paper stock certificates". USA Today. Retrieved September 7, 2010. 
  2. ^ Matt Krantz (June 10, 2010). "Free paper stock certificates? It's possible but does take work". USA Today. Retrieved September 7, 2010. 
  3. ^ Connie Loizos (6 March 2013). "Cofounded by Manu Kumar, eShares Aims to (Finally) Digitize Stock and Options Certificates". PeHUB. Retrieved 13 June 2013.