Have you ever wondered what a stock certificate actually is? Do you have a clear answer in mind, yet have no idea how to fill one out?
Today you're going to learn how a simple form can make every difference in your business. It only takes a few moments to calculate how to fill out a stock certificate and a short amount of time to deal with one. So how do you take the next step exactly?
It's time you found out. If you're interested in how a simple certificate can make a world of difference in your company's behavior, keeping reading to find out.
What is A Stock Certificate?
Stock certificates are like receipts that declare a person's partial ownership in a company.
As with a receipt, a stock certificate describes information about the new owner, their transaction, and the company they made their exchange with. Here are the items listed on a certificate you should know about before going further:
- The total number of shares
- The exact date
- The cert identification number
- At times, a corporate seal and present signatures
A non-digital stock certificate comes in a piece of paper complete with printed signatures from higher-ups. This form of receipt/contract between an owner and a company comes in different forms depending on the owner and the type of company being represented.
A corporate stock certificate declares that a company penned-in a shareholder into their company. Financial details and the amount of ownership are all determined and clarified on the certificate. This piece of paper also defines the credit an owner now has for voting rights.
All of this is key to understand, but this process also defines the ability for a corporation to transfer rights and shares.
How LLC's Differ
An LLC (limited liability company) doesn't give out stocks, so their certificate looks different and stands for another list of abilities. For an LLC, shareholders are described as "members", as they receive membership bonuses, assets, and degrees of control over the functions of said company.
Here's the quickest way to tell the difference between LLC's and Corporations in the way they handle stock certificates.
- A corporation deals out "shares" in ownership of a given company
- LLC's ascribe "memberships" and assets to a member of a company and financial rights to non-members
Exploring How Businesses Give Out Stock Certificates
For starters, your business needs to determine its exact number of authorized shares. This keeps track of previous owners and leaves availability for owners in the future.
Once you've tallied your ownership, it's time to figure out who owns what and by how much compared to other owners. In short, define the percentages of shares among owners in your company.
A stock certificate should include all the public information of an owner and their relationship to your company in shares and position. This allows you to give out a physical certificate.
How Shares Work
Shares describe the degree of ownership one has in a company. Ownership isn't just defined by action available in a corporation, but the percentage of profit one has once joined and active.
All corporations function as a collective of shareholders and their respective percentage of values. There are subscribers and members, generally, that make up the total pool of shareholders. A subscriber registers and starts up a corporation - a so-called original shareholder - and members are those that come afterward.
There is no limit on the total number of shareholders a corporation can have, which sometimes brings up caveats. This is part of the reason why a corporate stock certificate and ledger and useful. As the member count increases so do the needs for managing the number of members and their profit shared.
Members portion of ownership is both their credit and their debt - as is often the case with the flipped-term. Therefore, all owe an amount of business debt they must pay through the years. Certificates regulate this process to some degree as well.
Shares vary in value depending on two variables.
- The market value of a share upon purchase
- The nominal value, or amount a shareholder paid for a portion of a corporation
There are also share structures, that describe the percentage of ownership one gets when buying a segment of a company. This depends on the corporations choice.
Shares are also described in different classes and with different actions attached. For example, an equal share grants shareholders equal profits and choice in a company to the next shareholder. In many cases, an original shareholder will own a substantial amount of total shares.
In short, shares and shareholders are in-corporation regulated slices of the total profits and values of a company. As the values and their profits shift, so do the amounts of profit shareholders receive. However, the approximate fraction thanks to a share do not change unless specified.
How to Fill One Out
If you choose to fill out a paper form certificate, you can find one online or in your articles of incorporation book. You can find templates online simply by searching for the type of certificate you need to be specified.
The first items list your company's name and address. If these aren't already printed, do so. As a connecting item, list the buyer's address and the number of shares they're purchasing.
Once again, if you're working from an LLC, almost all of this process is kept the same, minus a few upcoming exceptions.
You need signatures from at least two corporate officers to keep moving forward. Once you've done this, it's time to emboss the area where you add your corporate stamp. You can again find this in your incorporation book.
Generally, there is only one step remaining. You need to put down the SC number and names, shares, and prices involved in the transaction. This allows the management of ledgers and tracks transfers and transactions on a corporate level.
LLC Membership Certificate
A membership certificate is an LLCs version of a stock certificate. It's used when a member is inactive or wants to change their place in an LLC.
The baseline items on an LLC membership certificate involve stating the location of the LLC, the member, and their approximate interest in the company. The articles of organization will be your source of describing members rights at this point.
In a sense, an LLCs signing process is informal and a non-legal binding effort compared to corporations. At the very least, a membership certificate signing requires some form of witness and an agent. You can also use your authorized manager to act as the signing witnesses.
A membership certificate requires a legend that can be included separately or cohesively with the original form. The legend lists and defines restrictions to a memberships interest and the transferal process.
The certificate itself includes a bunch of variables ranging from issue date, member name, and a statement of benefits. In simplest terms, a membership certificate is a contract that clearly points towards the change of interest in a company and the members and managers involved in the exchange.
Getting Stock Certificates
Often one of the quickest ways to obtain a stock certificate is to ask your broker for one. You can also contact any business and ask for own - in many cases, you'll receive one digitally. Lastly, transfer agents are a good way to go if all else fails.
Asking your broker is straightforward and only requires doing some research to ask the right questions. Transfer agents essentially keep track of changes in ownership. Their job is to maintain and cancel certificates as ownership shifts.
These agents also work as middle-men for businesses to deal with mergers, brokerages, and exchanges of interest. You can contact your personal agent or the agent of an outside business easily. First, contact the business where an agent is attached, then ask for a direction that route.
However, you might have some difficulty reaching an agent just by contacting a business. You can access any businesses annual report so that you can find the legal name of a transfer agent.
There are also online marketplaces that receive certificate requests if you want to take that route.
Caveats to Consider
For starters, paper form declarations of ownership and valuation are often seen as antiquated. This view makes it especially hard sometimes to get a paper copy out of an agent. If you have this issue, you can always go digital or refer to another transfer agent.
Paper certificates aren't only seen as antiquated, they're treated as such. Many large businesses have actually discontinued their certificates in exchange for easier to store and receive digital files.
Both physical and digital realms include certified stocks, however, only digital included uncertified stocks as a variable. This leads to a different discussion about digital shares and the associations therein.
Another caveat: paper certificates risk damage and general durability. A digital certificate doesn't have either of these issues. However, digital files are at security risks to a pretty high degree unless precautions are taken (corrupted files are a great example).
There is a debate between auditors perspective on paper stocks. Some still believe that paper stocks are easier to manage and record. Prepare to run into some minor confusions with auditors if you're still taking the paper route.
A Lasting Proof of Ownership
Paper stocks or certificates are a powerful symbol of ownership for any shareholder. They show in physical forms, like a diploma, someone's involvement in a successful pursuit.
Even outdated stocks are still worth some amount of money, and many dealers find antique value in certificates that belong to no longer existing companies. There is also, again, the issue of security. Where digital documents can be easily corrupted, paper certificates have a weight of proof that doesn't quite compare.
What Should I Do With My Certificates?
If you don't have an investors account already, it's a good idea to get one so you can deposit your certificates. This keeps your stocks in one place and proves some reliability if you ever need to show your piece of a company.
The same thing can be applied to brokerage accounts. This is highly recommended for older investors - ones who have more experience with brokers. This makes inheritances and posthumous recording much easier.
In short, whenever you've actually gotten your stock certificates together, start thinking about the places you can store them. Furthermore, always consider the effectiveness of digital and paper copies for the future.
Take Stock in Your Company's Future
A stock certificate is a powerful tool at your disposal. With one, you can make longlasting changes in your company and in the lives of everyone involved. This simple digital form or paper document is a gateway to major movements in top-tier businesses.
After reading this article you should have a clearer idea of what stock certificates are, how they work, and why they're important to you regardless of your role in a business. With that said, it's time you got ahead on your competition and any obstacles in your future.
It's time you got a head start on the materials that keep your documents and exhibits clean and organized. It's time you figured out why legal products matter.
Let's face it. Making changes to your company can be a long ordeal and even a legal circus. Why not make things easier?
Your next step to action is simple. Start ordering the right tabs, exhibit dividers, and other materials key to holding your business together today.