Definition
A Stock Certificate is a physical document that signifies ownership in a company. It contains details like the number of shares owned, the date, an identification number, and a corporate seal. However, with the rise of digital shares, physical certificates are becoming less common.
Key Takeaways
- A Stock Certificate is a physical piece of paper representing ownership in a company. It includes details such as the number of shares owned, the date, an identification number, and a corporate seal.
- Nowadays, most stock certificates are digital, both to reduce costs and avoid loss or damage. These are known as electronic, or “book-entry” stocks, which are held in a database and can be sold or transferred electronically.
- Tangible Stock Certificates, while less common today, are essential for some private companies or unique situations. Some collectors also value them for their historical or artistic significance.
Importance
A stock certificate is important as it serves as legal proof of ownership of shares in a company.
It indicates the number of shares an individual owns, the name of the issuing corporation, and other important details such as the unique certificate number and the name of the shareholder.
As possession of the certificate establishes legal claim and rights associated with being a shareholder, such as dividends and voting rights.
In today’s digital era, most stock ownership is recorded electronically, but the significance and function of a stock certificate remains the same—verifying that a person or entity has ownership in a certain amount of stock in a corporation.
Explanation
A stock certificate is an important financial instrument, as it signifies ownership in a company. Essentially, it is a legal document that provides physical evidence of ownership in a corporation. When someone purchases a singular or multiple shares of a company’s stock, the company or brokerage firm issues them this certificate.
The primary purpose of the stock certificate is to prove partial ownership of a corporation and to protect the rights of the shareholder. The usage of stock certificates can be seen during various corporate functions. For instance, during any shareholder’s meetings, the votes are allocated based on the number of shares, which is indicated by these stock certificates.
They also play a critical role during the change of ownership. If a shareholder decides to sell their shares, the stock certificate will be transferred to the new owner. Therefore, the importance of a stock certificate generally depends on its role in determining a shareholders’ legal claim on part of a company’s assets and earnings.
Examples of Stock Certificate
Individual Share Ownership: For example, an individual decides to purchase 10 shares of Apple Inc. After the purchase, the individual is issued a stock certificate that verifies their ownership of 10 shares in the company. This physical document serves as an official record and a proof of their investment.
Collectible Certificates: In some scenarios, old or obsolete stock certificates can become collectibles and hold significant value. For example, a vintage stock certificate from the Ford Motor Company dating back to the 1900s would have significant value to collectors, not necessarily because of the face value of the stocks it represents, but due to its historical, aesthetic value and rarity.
Corporate Bonds: Corporations often issue bonds as a way to raise money without taking on additional debt. For example, if IBM needs to finance a new project but doesn’t want to dip into their current cash reserves or borrow money, it can issue bonds. The purchaser of these bonds receives a certificate acting as proof that they lent money to the corporation and is entitled to a return on investment.
FAQs about Stock Certificate
What is a Stock Certificate?
A Stock Certificate is a physical piece of paper representing ownership in a company. Stock certificates include details such as the number of shares owned, the date, an identification number, usually a corporate seal and signatures.
What is the purpose of a Stock Certificate?
The purpose of a Stock Certificate is to provide a shareholder with physical proof of ownership in a company. It acts as a receipt for the stock that is purchased.
Are Stock Certificates still used today?
While most stocks are now traded digitally, some companies still issue paper stock certificates. However, they are generally rare and are considered collectibles.
What happens if I lose my Stock Certificate?
If you lose your Stock Certificate, you should immediately contact the company or the agent acting on behalf of the company and report the loss. They might require you to purchase an indemnity bond, which protects the company if another person claims ownership of the stock.
How can I sell a stock with a Stock Certificate?
To sell a stock with a Stock Certificate, you would typically need to send the certificate to a brokerage firm. The brokerage firm then converts the physical certificate into an electronic form for selling.
Related Entrepreneurship Terms
- Equity
- Shareholder
- Dividends
- Common Stock
- Preferred Stock
Sources for More Information
- Investopedia: This site is a resource for investment and financial education. They offer explanations of all sorts of financial terms, including stock certificates.
- U.S. Securities and Exchange Commission: This is the homepage of the government organization that regulates the securities industry, so they’re a credible source of information about stock certificates.
- NASDAQ: Home of the NASDAQ stock market, this site contains lots of information about how trading works, including the role of stock certificates.
- The Motley Fool: The Motley Fool is a multimedia financial-services company that provides financial advice for investors. They offer articles on a wide range of topics, including an understanding of stock certificates.
