Sunday, September 17, 2017

What is a Stock Certificate?

The stock certificate is a piece of paper that represents the legal ownership of a certain percentage of a company.  This percentage is commonly known as stock in a company or shares in a company.  Further defined:

In securities law and corporate law, a stock certificate (also known as stock, certificate of stock, stock ownership certificate or share certificate) is a legal document that certifies ownership of a specific number of shares or stock in a corporation.

A stock certificate has several elements on the face including the signature of an executive or executives authorizing the shares for transfer to the buyer, how many shares the stock certificate is worth, the par value of the shares, the type of stock (whether preferred or common shares), the name of the company and any restrictions or disclaimers made by the company as to the representation of the stocks issued via the stock certificate.  

In today's digital era, stock certificates are rarely issued.  In fact, many stock brokerages now charge a fee if an individual would like to have the stock certificate mailed to their physical address.  Having a physical stock certificate in some ways provides security.  For example, you own the stock directly; as opposed to holding it in a brokerage account where the broker has legal title to the stock in your name.  A stock certificate held in physical form can also be a bad thing.  Many banks and brokers need time to process the sale of a physical stock certificate which means if there is a sudden spike in the price of the stock, and you want to sell, it can not be done instantly like online via a stock trading account. 

Iconic stock certificated become collectible even if the company goes out of business.  Some stock certificates are held in physical form because old school investors like the way they look.  For example, the silhouette on a share of Disney stock has Mickey Mouse and has long been revered as one of the most beautiful stock certificates available.

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