Investments in the stock market have changed significantly from the past. The process involves acquiring a company’s shares through the stock market.
In the past, investors visited these markets and purchased shares from brokers. Over the years, the process shifted to telephone communications. Nowadays, investors can sell and acquire shares over the internet.
Shares represent a company’s unit of equity ownership. When an investor acquires a company’s shares, they also become its part-owners.
Usually, these acquisitions get registered in the market, proving an investor’s ownership of the shares. However, there are other methods that investors can use to confirm their ownership of stock. One such proof may include a shares certificate.
What is a Shares Certificate?
A shares certificate is a written document that serves as proof of share ownership. Another name used to describe this certificate is a stock certificate.
These documents are attested on behalf of a firm or company. A shares certificate provides investors with legal proof for their ownership of a company’s stock. This certificate includes the number of shares a specific investor owns.
Due to the modern methods of trading, the need for shares certificates has decreased. Traditionally, companies provided investors with a stock certificate to confirm their ownership.
These certificates also acted as a receipt from the company of the purchase of those shares. This certificate then got transferred from the owner to any subsequent owners.
Companies use share certificates to track their shareholders. However, it only provides information about the initial owner. It does not elaborate on the current shareholders.
Due to the frequency of trades in the share market, tracking current holders may be challenging. However, there are modern methods of following a trail to the current investor.
Nonetheless, share certificates provide written confirmation of an investor’s ownership of a company. There are several details that these share certificates involve.
The requirement to issue a stock certificate may differ from one jurisdiction to another. Usually, every country has companies act that dictates whether companies should distribute these and what the content should be.
Overall, a share certificate is a document that serves as legal proof of purchase for investors. However, it does not confirm the ownership for perpetuity.
Investors may trade these shares in the market. Therefore, these companies will also have a timeframe attached to them. In essence, a share certificate confirms the issue of shares to a specific investor. It is not the share itself.
How do Share Certificates work?
Companies issue shares to shareholders to raise finance. Usually, companies have a fixed number of shares for issuance, known as authorized shares.
From these authorized shares, companies can offer new or existing shareholders the chance to become part-owners. If shareholders accept this offer, they will pay the company and receive the ownership instead.
Once a company completes the transfer of the issued shares to the shares, it will provide them with a share certificate. However, there may be an exemption to this rule in the company act under which it falls.
If the company is not exempt from the issuance, it will provide shareholders with share certificates. The company act will also dictate the time-frame for issuing share certificates.
Usually, companies issue a share certificate to shareholders for new issues within two months. They do not provide a stock certificate for every share sold.
Instead, these certificates get issued to investors for the total number of shares they purchase after issuance. Therefore, companies only pay one certificate for all the stock issued to a particular shareholder.
The content of share certificates will differ from one jurisdiction to another. In most cases, it includes the investor’s name and the number of shares purchased.
However, the content may also consist of further details regarding the transaction or company. In practice, share certificates contain detailed information about both parties and the stocks involved.
Share certificates have various advantages. For example, they provide the holder with the right to choose a proxy to vote. Similarly, in some jurisdictions, these are required for proof of entitlement to dividends.
Traditionally, companies sent their dividends directly to the holders of share certificates. However, not having these certificates is no longer necessary for that purpose.
What are the contents of a Shares Certificate?
As mentioned, the contents of a shares certificate will differ significantly from one jurisdiction to another. In most cases, it must include information about the investor and the number of shares they hold.
However, the companies act of the jurisdiction in which a company operates may require more. Most share certificates cover the following areas.
- Certificate number (usually unique or serialized).
- Company name and registration number.
- Shareholder name and address.
- The number of shares issued/owned.
- Date of issue of shares.
- Class of shares.
- Amount paid in exchange.
- Shares paid status (fully paid, paid, unpaid, etc.)
- Authorization signatures.
A shares certificate is not a standardized document. Therefore, companies may add more content to it. For example, some companies may include their logo as a part of a shares certificate.
Usually, companies design these certificates to match their brand identity. However, they must ensure these certificates cover the required content by their companies act.
What is the process for issuing a Shares Certificate?
The process for issuing a shares certificate will vary from one company to another. However, several steps are common among them.
Since this process relates to the issuance of shares, it will include similar phases. The procedure for issuing a shares certificate is as below.
Board meeting to issue share
The first step to issuing a shares certificate is the board’s decision to issue shares. Usually, the allotment committee looks after this process.
Once the committee makes a decision, the board will approve it and pass it for resolution. After this, the company will allot shares to shareholders, which accompanies an allotment letter.
This letter serves as a share certificate until the issuance of the final certificate.
Register of members
Once the company issues shares, it will receive applications from various investors. In some cases, companies may offer them to existing shareholders, who accept or reject them.
Once done, the company secretary will prepare a Register of Members from the list of the shareholders. This register holds information about the shareholders and the number of shares allotted to them.
Preparing share certificates
After handling the register of members, the company secretary will arrange the form of the share certificates. This form will include details that will go into the share certificate.
Usually, the information for this process comes from the register, which consists of details of applications received from investors.
After this, the company will print the shares with the required information. The secretary will also obtain authorizing signatures on those certificates.
Issuing share certificates
The issuance of share certificates does not occur immediately after preparation. Before this process, the company secretary informs shareholders of the availability.
However, the secretary will also require them to provide the allotment letter and banker’s receipt to confirm their payment. Usually, this process occurs through a public notice. Once shareholders submit the required documents, they can receive their share certificates.
Do I need a share certificate to sell shares?
In many jurisdictions, the requirement for a physical share certificate to sell shares has become less common with the advancement of electronic trading and record-keeping systems.
Traditionally, when shares were issued, a physical share certificate representing ownership in the company was provided to the shareholder.
However, in modern financial markets, physical share certificates are often replaced by electronic or digital ownership records, commonly known as “book-entry” or “paperless” shares.
The method of selling shares will depend on the market and the specific regulations in the country where the shares are traded.
You can usually sell shares through a brokerage account or the company’s transfer agent without a physical share certificate.
Here are the typical scenarios for selling shares:
- Through a Brokerage Account: If you hold your shares in a brokerage account, you can typically sell them electronically through the brokerage platform. The brokerage will handle the transaction and update the ownership records accordingly.
- Through the Company’s Transfer Agent: Some companies have a transfer agent who manages their shareholder records. If you hold physical share certificates, you may need to submit them to the transfer agent to sell the shares, or you can request to have them converted into book-entry form before selling them.
- Book-Entry Shares: If your shares are in book-entry form, they are recorded electronically, and you can sell them through your brokerage account or the company’s transfer agent without needing physical share certificates.
It’s important to note that if you possess physical share certificates and wish to sell the shares, you may need to follow specific procedures for converting the physical certificates into an electronic form or provide the certificates to your broker or the company’s transfer agent to process the sale.
Before selling shares, you should check with your broker or the company’s transfer agent to understand the specific requirements and procedures for selling shares in your particular situation and jurisdiction.
They can guide you on the necessary steps to complete the sale effectively.
What To Do If You Lose Your Shares Certificate?
If you lose your share certificate, it is essential to take prompt action to protect your investment and ensure that the shares remain in your ownership.
Here are the steps to follow if you lose your share certificate:
- Report the Loss: Immediately notify the company’s transfer agent or broker about the lost share certificate. Provide them with all the relevant details, including the company’s name, the number of shares, and any unique identification numbers associated with the certificate, if available.
- Affidavit of Loss: You may be required to complete an affidavit of loss, which is a sworn statement confirming the loss of the share certificate and your intention to safeguard against any unauthorized transfer of the shares.
- Place a Stop Transfer Order: The transfer agent or broker will place a stop transfer order on the lost share certificate, which prevents anyone from transferring the shares without proper verification.
- Obtain a Replacement Certificate: To get a replacement certificate, and you will likely need to complete a “Lost Securities Affidavit” and provide any necessary documentation as required by the transfer agent or broker. They may also require you to post a bond as a form of security against potential fraudulent activity related to the lost shares.
- Check for Ownership: If you cannot obtain a replacement share certificate, verify your ownership through other means, such as account statements or electronic records from your broker or transfer agent.
- Notify the Registrar and Authorities: In some cases, you may need to notify the relevant registrar and regulatory authorities about the loss of the share certificate. Your broker or transfer agent can guide you on any additional reporting requirements.
- Update Beneficial Ownership: If you hold the shares through a brokerage account, ensure the updated share ownership information is reflected in your account records.
- Beware of Fraud: Be vigilant against any attempts of fraudulent activity related to your lost share certificate. Always verify the legitimacy of requests for share transfers or other transactions involving your shares.
Conclusion
A shares certificate is a written document that provides proof of stock ownership. This certificate usually includes the details of the investor, the company and the transaction.
Usually, the requirement for the content of a shares certificate differs from one jurisdiction to another. The process for allotting shares certificates involves various steps, as mentioned above.
