Are Stock Certificates Required: Everything You Need to Know
No, unlike in the past, businesses are no longer required to issue stock certificates, although stock owners can request a certificate if they wish.3 min read
Are stock certificates required? No, unlike in the past, businesses are no longer required to issue stock certificates, although stock owners can request a certificate if they wish.
What Are Stock Certificates?
A stock certificate is a document that proves that you own stock in a company. In the digital age, you can prove stock ownership without holding a physical certificate. However, if an investor wants a stock certificate, he can request that his brokerage house issue a certificate, or they can contact the company that issued the stocks.
Essentially, when you purchase a stock, it means that you are purchasing an ownership stake in a company. The number of stocks that you own determines your ownership percentage. Only companies that have completed the incorporation process can issue public stock. When a company decides to go public, it means that the business plans to incorporate and offer stock to the general public.
A stock certificate must contain several pieces of information:
- The corporation's name and incorporation date.
- The name of the investor.
- The issue date of the stocks.
- How many shares the investor owns.
To prove their legitimacy, stock certificates should also include:
- A seal of authenticity.
- An official signature.
- A registered certificate number.
While some investors prefer having physical stock certificates, they are no longer needed to provide proof of stock ownership. Investors that frequently buy and sell stock usually will not request stock certificates because waiting for the issuance of the certificate can delay a transaction.
In modern times, a stock certificate is only issued if requested by the investor. Companies do not have to issue these certificates automatically but are legally required to issue a certificate when requested. While stock certificates are mostly symbolic, they can be valuable to investors that want physical proof that they own stock.
Issuing Stock Certificates
Only corporations, like C corporations and S corporations, can issue stock certificates. Other business entities have different methods for documenting ownership. Only private companies can request a physical stock certificate. Publicly issued stocks are recorded in an electronic database maintained by the exchange that sold the stock.
An issued stock certificate proves that the holder of the certificate has an ownership stake in a corporation. Membership certificates indicate ownership of a limited liability company (LLC). Partnership certificates are issued to owners of limited partnerships and limited liability partnerships. Investors should be careful not to lose an issued certificate, as it proves they own company stock.
Before issuing stock certificates to initial company investors, a corporation should review how many corporate shares it is authorized to issue. To find this information, see the corporation's Articles of Incorporation or contact the Secretary of State in the state where the business is incorporated. Corporations should refrain from issuing more than half of its authorized shares so that new members can be added to the company at a later date without having to authorize the issuance of more stock.
Next, the corporation should calculate each shareholder's ownership percentage. For example, if a shareholder owns a 10 percent stock in the company and there are 50 shares that are available to issue, you should provide the shareholder a stock certificate that indicates they own five company shares.
Every stock certificate that you issue should list the name of the shareholders and the number of shares that they own. Stock certificates should also include a certificate number so that you can easily locate the certificate if you need to update the information after shares get sold or transferred. If a shareholder purchases more shares, you can either issue a certificate that represents the additional shares or a brand-new certificate that covers all of the shares.
A corporation's Articles of Incorporation should include information about every shareholder, including their contact information, how many shares they own, and their stock certificate numbers. A copy of the Articles of Incorporation should be safely stored in a location where it can be quickly retrieved by the company secretary. Stock certificates should only be sent through certified mail.
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