Updated October 28, 2020:

Cancellation of share certificate procedure is easier than most people think. Stocks are assets of a corporation. A share certificate is a legal document showing ownership of stocks. A share certificate contains the name of the owner of the stocks. You can sell your stocks to an interested party in exchange for cash. However, you first need to cancel your share certificate before you can legally sell the stocks.

Steps to Cancellation

  • Find the stock certificate.
  • On the back of the stock certificate, write “VOID” in capital letters.
    • You can also request your broker to do this for you.
  • Write the date of cancellation. For example "June 06, 2018” or “06/06/2018.”
  • Find the transaction date on your certificate and record it safely. The transaction date is usually on the right side of the stock certificate.
  • Identify the age of your canceled certificate and write it down in your books.
    • For example, “certificate 6789 was canceled on June 06, 2018, seven months following the actual transaction date.”

Why Private Companies Don't Need to Issue Stock Certificates

Most public corporations may not be issue paper stock certificates, but we have yet to see a true “paperless certificate.” What is available is even better and private companies should follow suit. Private enterprises provide owners of stocks with some sort of certificate to act as proof of ownership. All details involving transfer and sales of shares are handled by lawyers.

Yet, public companies can have an advanced solution to paperless ownership of certificates. Instead of shifting to the cloud, companies can build an even better solution that promotes efficiency. Currently, companies use an old system of giving out stock certificates as a standard record of proof of stock ownership. But, you don't need such a complex system to issue a certificate. Requirements needed for providing a legally acknowledged certificate are simple and free.

Using Direct Registration Systems (DRS) to Replace Certificates

Instead of certificates, public companies switched to direct registration a long time ago. Direct registration systems permit an issuer to register your name in his or her books as proof of ownership of stocks. In simple terms, DRS is like a ledger that represents ownership of a particular company. It is updated by the company or a transfer agent who is appointed by the company.

Can Private Companies Do the Same?

The simple answer to that is yes. However, each state has its own laws. In Delaware for instance, where most companies are incorporated, the state allows for uncertificated shares. However, the board of directors must agree that all the shares will be uncertificated. Anyone with share certificates can then return them to the company and be issued with uncertificated shares.

Advantages of Uncertificated Shares

Ditch Stock Certificates

With uncertificated shares, everything can simply be done electronically through email or using an online platform. Although you no longer need official signatures from other shareholders, be sure to get some form of official recognition from them. This can help you avoid any conflicts or misunderstandings in the future. Also, ensure that you have some way of accurately tracking shares.

It Is Easy to Make Changes

Corporations can easily move to uncertified shares without necessarily changing current certificates. Essentially, it is not a must for shareholders to want to return old certificates. That means if you can't find all the shareholders then you can still migrate to uncertificated shares. All you have to do is monitor old certificates with an uncertificated share in the same system.

Enables Corporations to Control the Transfer of Shares

Uncertificated shares prevent selling or transferring of certificates without the company's transfer agent. Shareholders must consult with the company in a formal procedure before selling or transferring certificates. Also, companies do not need to pay a third party to handle selling or transferring certificates.

Use An Online Platform

Uncertificated shares make it easy for companies to record, update, and verify each transaction on an online platform. Depending on a shareholder's information rights, one can access and view this at their pleasure.

Changing From Stock Certificates to Uncertificated Shares

With such ease and simplicity of uncertificated shares, it is still a wonder why most private companies are not using it. Changing from issuing of certificates to uncertificated shares only involves:

  • The board of directors making a formal choice to shift to uncertificated shares
  • Changing some of the company's by-laws that relate to issuing of certificates
  • Issuing uncertificated shares

This approach is as simple as your banking system. Your banking details and transaction are represented by numbers which are on an electronic ledger. It is high time that private companies follow the shift to uncertificated shares.

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