What is a Stock Certificate?

//What is a Stock Certificate?
What is a Stock Certificate? 2017-10-10T07:46:37+00:00

Definition: A stock certificate, also known as a share certificate, represents a legal interest and ownership in a company’s common stock and its related stockholder rights.

What Does Stock Certificate Mean?

What is the definition of stock certificate? Historically, investors received share certificates as a proof of ownership of their shares. Stock certificates contained information related to the number of shares, the date of issuance, an identification number, and other important information.

To avoid replication, certificates usually feature intricate design, which might change over the course of years, a corporate seal, and several signatures. Often, certificates serve as evidence of entitlement to dividend payments with a receipt of payment attached on their back. However, in modern times, stock ownership is usually recorded electronically with a depositary securities system.

Let’s look at an example.

Example

Jonathan is a 75-years old investor. He has a brokerage account with a boutique brokerage firm, and he trades several stocks each month. Jonathan is a sophisticated investor, and he can follow the market trends. The only thing he cannot get used to is the electronic record of ownership.

Jonathan prefers to hold a physical stock documentation, a piece of paper with his name on, the number of shares he owns to each company, and all necessary information to prove stock ownership. Each month, he goes to his broker and requests a certificate, which the broker gets from the issuing corporation on Jonathan’s behalf.

The only problem that Jonathan faces is that some of the companies he has invested in are not interested in issuing a certificate, although they are obliged by the law to do so because it requires more administrative work. So, in some cases, Jonathan has to put up a fight with the company to get his stock documentation. From the company’s perspective, the companies are recording all the stockholders who are requesting stock certificates.

Summary Definition

Define Stock Certificates: Stock certificate means the document that represents an ownership stake in a corporation.