What Is a Share Certificate?

What Is a Share Certificate?

Let me tell you directly: a share certificate is a written document issued by a corporation that proves your legal ownership of a specific number of shares. You might also hear it called a stock certificate.

Key Takeaways

Understand this: a share certificate is simply a paper document showing you own a certain number of shares in a company. In today's world, we've mostly moved away from physical certificates to digital records. If yours gets damaged, lost, or stolen, you can get a replacement for the same number of shares. If it's lost, destroyed by accident, or stolen, contact the transfer agent right away and request a 'stop transfer.' And remember, whether shares are transferred on paper or electronically, the legal and tax effects are identical.

Understanding Share Certificates

When companies put shares out in the market, buyers like you get a share certificate as proof of purchase and ownership. It certifies that you're the registered owner from a specific date. Key details on it include the certificate number, company name and registration number, your name and address as the shareholder, the number of shares you own, the class of shares, the issue date, and the amount paid or treated as paid for them.

In the U.K., under the Companies Act 2006, companies must issue a certificate when shares are allotted, and they have to do it within two months of issuance or transfer. They can issue one certificate for all shares at that time, unless you request separates.

Sometimes, if you have a stock certificate, you can give proxy to someone else to vote those shares. Even without the certificate, you might still proxy your voting rights. These rights come from the corporation's charter and corporate law.

If your certificate is damaged, lost, or stolen, you can get a replacement for the same shares. You'll need to return any damaged document to the company first, and at that point, you can choose a single certificate or separates.

Back in the day, these certificates were needed to claim dividends; you'd present them, and payments would be noted on the back, keeping all records together. But in the digital age, investors like you rarely deal with physical certificates anymore—we rely on electronic proof of ownership.

Disadvantages of Issuing a Share Certificate

There are clear downsides to issuing share certificates, especially from the company's side. It boils down to time and money—producing paper certificates is labor-heavy and costly, often requiring a whole team just for management.

Maintaining the system involves a lot of tedious clerical work. For instance, transactions like mergers or spinoffs need signed and mailed certificates to proceed, and compliance gets complicated. Tracking ownership is tough because shareholders can pass certificates without telling the company, leading to back-office efforts to verify identities and approve transfers. Companies must monitor shares constantly, usually via computer systems.

If you lose or have your certificate stolen, it's a hassle for the company too—they have to locate old shares, confirm ownership, stop the old certificate, and issue a new one. This is obviously frustrating for you as well. Overall, handling paper stocks for documentation, tracking, and verification is challenging.

Historical Note

Here's a fact: the Dutch East India Company issued the first stock certificate in 1606, valued at 150 Dutch guilders.

Special Considerations

In today's markets, you as an individual investor seldom take physical possession of share certificates. Some countries have ditched them entirely, using electronic registration for ownership. In the U.S., the Depository Trust Company (DTC) handles electronic holding of shares, in certificated or uncertificated form, allowing easy transfers via book entries instead of physical moves.

Certificates can be registered, which just evidences title, or bearer form—though rare now—which lets the holder exercise all stock rights. Many older certificates are collectible for their history and design; this hobby is called scripophily, similar to collecting stamps or banknotes, with value based on condition and age.

What Are My Old Share Certificates Worth?

Don't throw away old share certificates—they might still have value. Contact your stockbroker to find the CUSIP number, check if the company is still publicly traded, call the transfer agent listed on the certificate, or use a paid service to research the stock's history.

What Do I Do If I Lost My Original Share Certificate?

Even without the physical certificate, you're still the owner with all shareholder rights. If it's lost, destroyed, or stolen, contact the transfer agent immediately for a 'stop transfer' to prevent unauthorized transfer. Your broker can help too. To get a replacement, you'll typically need to provide an affidavit of the loss facts, buy an indemnity bond to protect the company, and request the new certificate before someone else claims it.

If Stock Certificates Are Transferred on Death, What Is the Tax?

Whether it's a physical certificate or electronic shares transferred on death, taxes work the same: you won't owe taxes on inherited shares, but you might if you sell them.

The Bottom Line

Before the internet, companies tracked ownership with written share certificates, which shareholders used to prove shares, transfer them, or vote. Now, digital records have mostly replaced paper ones, but forgotten certificates in attics or deposit boxes are still valid if the company exists.