A share certificate, also known as a stock certificate, is a documented proof of shareholding in a company. It can be a physical document or an electronic one, issued to a shareholder and signed on behalf of the corporation. This certificate is legal proof of ownership of a certain number of company shares. It certifies registered share ownership of a certain number of shares from the grant date and also acts as a receipt of share purchase. However, a share certificate merely contains details of the shareholder and the number of shares they own, it is not the stock itself.
Share certificates are issued based on asset classes. Usually, one certificate is issued to each shareholder containing details of the total number of shares of a particular asset class. Multiple certificates are issued only in case of shareholdings across both asset classes A & B. A company must issue a share certificate within two months from the date of the issue or transfer of shares. Similar to currency notes, companies use intricate designs in their paper stock certificates to restrict fraudulent replications.
Why is Share Certificate Important?
The primary role of a share certificate is documentation. All shareholder details must be updated periodically to track any changes in stock ownership. Suppose an investor buys 100 shares of a company today. A week later she might choose to sell 20 shares to another investor. A month later she might want to buy 100 more shares of the same company. All details of this shift in ownership must be tracked for auditing purposes.
Issuing new shares – New shares are issued to new shareholders. Company directors are vested with the power to create new shares without affecting the existing number of shares.
Transferring shares – Suppose a shareholder sells a part or all of their shares. The sale could be to an individual, an investor, or another company. Either way, a new share certificate has to be issued to both parties with revised shareholding details.
Loss or damage of certificate – Loss or damage to an existing share certificate has to be reported immediately. Except in case of loss of certificate, the damaged document must be returned to the issuing company before collecting a new one.
What Information is Added to a Share Certificate?
Though the design, layout, and mode of issuing share certificates (paper or digital) have evolved over time, the basic details included in it have mostly remained the same. The need for the accuracy of these details cannot be stressed enough. Broadly, share certificate templates across different businesses include the following information:
Full name of the company
Registered address of the company head office
Registration number of the company
Number of shares issued, in numerical and full word form
Name of the shareholders
Contact details of the certificate owner. In case of joint ownership, contact details of the first-named shareholder are only included
For limited companies, include the company seal, if any
How is Share Certificate Issued?
A share certificate is typically prepared and issued by the company secretary based on details provided by the company and shareholders. It is the primary duty of the company secretary to check all information for accuracy before publishing the certificate. The three most important details to be checked are:
Serial number of the share certificate
Number of shares being issued or transferred
Details of the shareholder
We will discuss this in detail in the later sections. However, an important point to be noted at this juncture is that a share certificate can be issued only:
As per company bylaws, company directors are vested with the authority to issue new shares with the approval of shareholders.
Articles of Association and the company Memorandum outline the processes to issue new shares or transfer their ownership.
How to Issue Electronic Shares?
In the United States, the Central Securities Depository (CSD) electronically holds both certificated and uncertificated shares. Share ownership is easily transferred through a book entry rather than the transfer of physical certificates. Meanwhile, electronic share certificates are stored as a digital copy on cloud servers. These are electronically signed by the company directors.