Stock Certificate

Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What is a Stock Certificate?

A stock certificate is a legal document which is considered to be evidence of ownership of the shares in the company and it consists of shareholder’s information including the name of the holder, issuing date, total number of shares issued to the holder, separate identification number accompanied by the corporate seal and signature.

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In simple words, a Stock Certificate is a legal document that authenticates ownership of a company by owning several shares. Usually, the records of such ownership are kept in an electronic version in the broker’s server, but upon request, a paper format version of the same can be attained.

Stock Certificate Explained

A stock certificate is a physical proof of a shareholders’ stake or ownership in a company. It contains the details such as the company name, number of shares held, and the price at which the shares were purchased.

In the modern day, this physical form of holding shares has been converted into a dematerialized form by electronically holding shares. This transition has ensured the security of the shares from being stolen or misplaced.

For every company, there is a Company Transfer AgentTransfer AgentA transfer agent tracks and maintains the records of an organization's shareholders. Examples of transfer agents are financial companies, trust companies, banks, or individuals. Listed firms often assign the management of their shareholders' data to a transfer agent. For instance, Amazon's transfer agent is Computershare. Amazon has provided its shareholders with the agent's contact details to help them update their names, addresses, or report on lost share certificates.read more who handles in management and maintenance of shareholder documents. It is entirely a different department from the company that issues the certificate in the name of the buyer of the shares.

Transfer agents are always listed in the company’s annual reportAnnual ReportAn annual report is a document that a corporation publishes for its internal and external stakeholders to describe the company's performance, financial information, and disclosures related to its operations. Over time, these reports have become legal and regulatory requirements.read more.

A broker must be contacted by the brokerage firm holding the said stock for direct registration. The online purchase of stocks normally unofficially holds the brokerage firm’s name. Such a purchase means that the broker and the brokerage firm keep track of the same.

For the paper certificate, the registration must be moved from the indirect form to the direct registration directly under the company’s name.

Direct registration normally and automatically lists the stock certificate with the assistance of the appropriate transfer agent. Once the transfer agent has access to them, the certificate can be used.

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Template

Let us understand the structure and features of a physical stock certificate by discussing the template through the explanation below.

#1 – Names and Dates – It includes the name of the company whose stocks are being represented for ownership. Next, it contains the person’s name that has purchased the said number of stocks, verifying the reliability of such information. Finally, the date also holds an essential relevance to the day upon which one becomes the owner of such stock.

#2 – Certificate Number – Each certificate has its unique coding of the number, which the company issues to make it more convenient for tracking in case any issue or problem arises.

#3 – Number of shares – It also contains the number of shares one holds of the company.

#4 – Signature and Seals – The company authority who represents the company is the mandatory signature. Also, to authenticate the sign, the company authority makes seal stamping.

Examples

Let us understand the concept of a stock certificate paper by discussing a couple of examples.

Example #1

In a brokerage firm say XYZ Ltd Co, a broker has two investors that are Suresh and Ramesh. Suresh, being a more knowledgeable and educated guy who daily indulges in learning about the market trend and an in-depth analysis of every company’s performance. He normally likes to purchase shares in bundles from different companies, normally the blue-chip companiesBlue-chip CompaniesBlue chip stocks are issued by companies possessing large market capitalization. Blue chip companies are market leaders. They provide good returns on stocks, offer dividends, and are considered safe investments.read more. Whereas Ramesh, a very new entrant in the investment field, is still learning about the various kinds of investments he can make to expand his wealth. As per expert guidance, he invested only in one of the company’s shares and bought around ten of them under his name.

  • Now, when they have to obtain physical or electronic evidence of their ownership, there will be two types of certificates that the transfer agent company will issue, respectively, to Suresh and Ramesh.
  • Apart from keeping them in the electronic mode in the broker’s records, the physical certificate they will issue will be of two types—one, the stock certificate for Suresh, and a share certificate for Ramesh.
  • Why such a difference? Suresh is not purchasing only one company share; his investments are with various other companies, while Ramesh deals with only one company for now. Hence, the transfer agent needs to be extra careful and check in with the broker’s record to see what kind of certificate needs to be issued.

Example #2

In the 1970’s physical stock certificates were the norm in wall street. However, by 2020, all stock transactions were shifted to electronic method. Nevertheless, 1% of the total holdings in the market still have stock held in physical form which account to roughly $780 billion.

The Depository Trust & Clearing Corporation (DTCC) wants to put an end to it as these small yet significant amount is still actively being circulated in the market and causing hinderances in regulations, tracking, and monitoring.

Advantages

Let us understand the advantages of holding a stock certificate paper through the explanation below.

  • #1 – It serves as evidence that the person who owns the certificate is a part of the ownership of the business enterprise. Since the certificate holds vital information about the stock owner and the number of shares he holds in the company, it is tangible proof that can be represented if asked.
  • #2 – It can also be used for legal purposes in case any sort of legal dispute arises. If one ever gets in conflict regarding the ownership of the same, stock certification can come in handy to stop such disputes as solid proof

This has been a guide to what is a Stock Certificate. Here we explain Stock Certificate template, examples, and advantages in detail. You may learn more about our articles below on financing –

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