Stock Certificate Definition

In the past, a stock certificate was a physical piece of paper that represented a shareholder’s ownership in a company. Before the rise of the internet, companies used to issue physical certificates to investors. 

Prior to internet trading, physical certificates were how shareholders would prove their ownership of a stock. That approach has changed somewhat; this guide will explore what stock certificates are today, even in the online trading era.

Purpose of Stock Certificates

Even into the mid-2000s, trading stocks was still a manual process. An investor would call up their broker and place an order for 1,000 shares of a certain stock. Once the stock purchase cleared, they’d receive a stock certificate. In that era, a stock certificate wasn’t dissimilar to a receipt. 

Paper stock certificates historically contained some or all of the following information on the face of the certificate:

• The shareholder’s name
• The date of stock purchase
• The number of shares owned
• The type of stock owned (i.e., common or preferred)
• CUSIP number, which is a unique transaction identifier used in stock purchases
• The signature of the company representative authorized to issue the share certificate

Before digital transaction records became universally accepted, a stock certificate’s advantage was that it served as the only proof investors could show of their shareholdings. 

If an investor wanted to sell their shares, they would have to send their certificates to their broker. The broker would notify the company and then send the stock certificates back to the company for resale. This complex process also represented one of the biggest disadvantages of physical stock certificates.

Are stock certificates worth anything today?

Today, stock certificates do still have value, but not in the way someone might initially think.

Book-Entry Form

Today, most trading is done electronically. Stock trades are now recorded using a process known as book-entry form. In turn, stock certificates (at least in their physical form) are largely obsolete; paper certificates aren’t needed to track trades and holdings.

With book-entry, ownership of securities is never physically transferred. This avoids a big disadvantage to physical stock certificates: in the past, avid investors would end up with an office full of paper stock certificates. With book-entry form, accounting entries are changed in the books of the financial institutions where securities are traded and investors have accounts.

Today’s Value

Historically, stock certificates were not only a way to prove ownership of a security; they were also a unique piece of artwork. It was common to receive a stock certificate adorned with fancy designs and ornate engravings.

Both old and new stock certificates still have value; whether physical or digital, a stock certificate represents ownership in a company.

Old physical stock certificates can be converted to book-entry form with the help of a broker (as long as the company that issued the stock still exists). Even old stock certificates of companies that don’t exist anymore may still have value. The company could have merged with another company or been acquired. Physical stock certificate owners would be prudent to seek advice from a broker before disposing of any stock certificates or related paperwork.

For example, because of their artistry, some stock certificates have become collectors’ items. Certificates from The Walt Disney Company featured beautiful depictions of Disney animations. Other companies also had collectible certificates. Some old stock certificates may not be worth shares of a company anymore, but they may have value as collectors’ items!

Do companies still issue stock certificates?

Most companies don’t issue stock certificates. Even the Walt Disney Company stopped issuing its collectible stock certificates in 2013. Today’s investors will usually receive account statements from their broker; these statements usually list the stocks the investor owns.

Stock Certificates: Summary

• A stock certificate is a physical piece of paper that represents a shareholder’s ownership of a company.
• Stock certificates include information like the number of shares owned, the date of purchase, an identification number, and relevant signatures.
• Today, stock certificates are typically collectibles, and securities ownership is instead recorded electronically using a process known as book-entry form.

How ZenBusiness Can Help Corporations

Forming a corporation and issuing stock is a complicated but exciting venture; ZenBusiness can help. Their corporate formation service makes it easy and quick to form a corporation in any state. Plus, their worry-free compliance service streamlines ongoing business compliance tasks. ZenBusiness tackles the tedious paperwork and red tape so business owners can focus on what they love: helping their companies thrive.