A stock certificate is only issued to corporations. This includes C corporations and sub-chapter S corporations. Other organizational structures have their own documentation forms. The stock certificate reflects the proportionate share of ownership in a company. Physical certificates only exist for private companies. Public stocks are kept by the computerized book-entry system of the exchange where the shares trade.
A stock certificate represents proof of ownership or investment in a corporate financial entity. All forms of corporations, including the limited liability corporations (LLC), partnership, including limited liability (LLP), and limited partnership (LLP), should receive a certificate. An LLC certificate is called a membership certificate. The LLP and LP are called partnership certificates. A stock certificate proves ownership and thus should be carefully held by the investor.
Review the number of authorized corporate shares. This material is available in the articles of incorporation. It may also be found through the public records of the Secretary of State in the state of issuance. Issue shares for less than half of all the authorized shares so that additional members added in the future do not require a new authorization of shares by existing shareholders.
Calculate the percentage ownership of each shareholder. Allocate the appropriate number of shares based on the percentage ownership and the number of shares to be issued. For example, a shareholder owns 10 percent of a recently formed company. There are 200 shares authorized and 50 shares to be issued. The shareholder will receive stock certificates for five shares.
Each stock certificate should include the name and number of shares of the stockholder. The certificates, readily available online or in stationery stores, should include a certificate number so changes in share ownership can be easily transacted. Never change the number of shares on a certificate. A purchase should result in additional certificates being issued or the old certificate being retired and a new certificate created.
A listing of all shareholder information, including name, address, shares held and certificate numbers, should be entered into the articles of incorporation. Another copy should be kept in a separate place where it can be quickly accessed by the secretary of the company. A certificate should be sent by certified mail to each shareholder.
It is very important not to issue all authorized shares. Leave at least half of the shares available at all times and avoid needing shareholder approval for more share issuance.
Carefully construct the list of shareholders. Hard feelings and misguided concerns arise when shareholders do not have a hard proof of shares.
- It is very important not to issue all authorized shares. Leave at least half of the shares available at all times and avoid needing shareholder approval for more share issuance.
- Carefully construct the list of shareholders. Hard feelings and misguided concerns arise when shareholders do not have a hard proof of shares.
After an 18-year career on Wall Street as a trader of municipal and mortgage backed securities, Carmelo Montalbano developed a very large desktop trading application that managed more than 30 institutional portfolios. Technology and small business acquisitions continue to be his primary interest.