What Is a Stock Certificate and Why Is It Important?

7th Jul 2021

What Is a Stock Certificate and Why Is It Important?

Are you new to the financial world and find yourself asking: what is a stock certificate? Learn more about stock certificates and why they're useful.

When considering a bright financial future, think about wealth building. Wealth building is using multiple sources to generate long-term income. That is one reason so many people buy stock.

As an investor, owning stock is one way to outpace inflation and grow your money. Owning stock is one method you can use to secure money that is forthcoming.

That’s why so many people ask, “What is a stock certificate?” They want to know how a stock certificate can help to ensure their financial fate with their valuable stock.

If you want to know too, what it is and why it is so important, keep on reading and let’s discuss.

What Is a Stock Certificate?

A stock certificate is proof of stock ownership. It is evidence that a person or entity owns shares of a company, such as preferred stock, common stock, Class A, Class B or various other types of a company’s share capital.

Essentially, you are purchasing an ownership stake in the company and the number of stocks determines your percentage of ownership.

Who Can Assign Physical Stock Certificates?

A company must have completed the incorporation process before they can issue public stock certificates. This means that once a company goes public, they plan to incorporate and offer the public stock.

Before You Issue a Stock Certificate

A corporation will need to review how many shares that it may give before issuing any stock certificates. They want to dot the “i’s” and cross the “t’s” before handing anything physical to their investors.

We can find this information in the Articles of Incorporation. Another option is to contact the Secretary of State (in the state) where the company incorporated.

It’s a good practice not to allow more than half of the shares toward the beginning of incorporation. This is so that you can add new members later on without needing to sign off on issuing more stock.

What Does a Stock Certificate Contain?

There are some vital pieces of information to include in order to produce a stock certificate. The stock certificate needs the following information:

  • The investor’s name
  • The stock issue date
  • The company’s name
  • The incorporation date
  • The number of shares the investor owns
  • The registered certificate number
  • The seal of authenticity
  • The official signature

You will issue a stock certificate if the investor requests it. While they are symbolic, they are extremely important to investors so that he or she has physical proof of the stock.

About Stock Ownership

A stock share is an ownership stake, so if something happens, the value of the shares will change. One such event that would end the value of the stock is if the company you hold shares in sells to another company.

In cases of the business selling, shareholders would exchange their stock for shares in the new company or for cash. This depends on the terms of the buyout.

In Cases of Bankruptcy

Another event that could happen is that the corporation goes out of business. Typically, this would be through bankruptcy. If the company goes bankrupt, the shares of stock almost always have no value.

The company could emerge from bankruptcy and be successful, but there would need to be new stock certificates issued from post-bankruptcy. The old shares from the pre-bankruptcy have no value.

Both cases of a sale or bankruptcy are good reasons to hold physical stock certificates as evidence of value.

Why Physical Stock Certificates Are Important

First, physical stock certificates have a major advantage like physical evidence. It is a tangible item that says you own part of the company. The certificate itself is not stock. Rather, it represents proof of the ownership of stock.

Next, it is a tangible record we use for legal reasons. In case you should dispute your stock ownership, the physical certificate is evidence.

In cases like your untimely death, an heir would possess a record of stock ownership that is indisputable by providing the stock certificate. Physical stock certificates can pledge your holdings. You can also use this in cases of collateral for a loan.

Corporate Stock Certificates Are a Work of Art

Corporate stock certificates can serve an aesthetic purpose. We can frame them or hang them for display just like you would with beautiful artwork.

Business owners love hanging physical stock certificates in their office to showcase a desirable reward. Employees can look forward to their daily jobs because they know it affects them too. The employees may also own stock in the company.

Blank Stock Certificate

If you are a business owner or attorney’s office ready to hand out stock certificates to your stock owners, it pays to keep a blank stock certificate on file. You can purchase blank certificates in a bundle. There are many types of paper styles to choose from.

Since we can use stock certificates as artwork, it’s good to take some time thinking about the paper style. Business owners and their employees are working hard to add value to the company and you want that value to reflect that on the paper style.

Stock Certificate Template

It’s easy to create a stock certificate template, but it has to adhere to the minimum form and content guidelines. The MBCA or the Model Business Corporation Act sets these.

To complete the certificate, you would need some understanding of MBCA terminology. Therefore, seek advice from a professional when creating a stock certificate for an investor.

Ready to Buy Stock Certificates?

With us, our goal is the same as yours. We strive to give you the best service every time. We won’t take your business for granted, because we want your loyalty and we want you to prosper.

Now that you know “what is a stock certificate,” your next step is to contact us. We can give you the best quality stock certificates that you’ve been searching for. Reach out to us today and learn more.