Stock certificate definition: a physical piece of paper that represents 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. Read on to find out how the definition of stock certificate affects how we trade securities even in the online trading era.
Even into the mid-2000s, trading stocks was still a manual process. You’d call up your broker and place an order for 1,000 shares of a certain stock. Once the stock purchase cleared, you’d receive a stock certificate. A stock certificate’s meaning was like that of a receipt.
Paper stock certificates historically contained some or all of the following information on the face of the 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 stock certificates’ disadvantages!
Yes, stock certificates do still have value, but not in the way you might think. Today, most trading is done electronically. The definition of stock certificate has faded away to mean that trades are recorded using a process known as book-entry form. Electronic methods eliminate the need to issue paper certificates to keep track of trades and holdings.
With book-entry, ownership of securities is never physically transferred. Another one of stock certificates’ disadvantages was that, if you were an avid investor, you might have wound up with an office full of paper. With book-entry form, accounting entries are changed in the books of the financial institutions where securities are traded and investors have accounts.
Historically, stock certificates were not only a way to prove ownership of a security. They were often a unique piece of artwork. It was common to receive a stock certificate adorned with fancy designs and ornate engravings.
Stock certificates new and old still have value. Remember, the definition of stock certificate is that it represents ownership in a company. If you have an old stock certificate for an existing company that never got converted to book-entry form, your broker can help.
Old stock certificates of companies that don’t exist anymore may also have value. The company could have merged with another company or been acquired. Make sure to do your research or ask your broker before throwing away any stock certificates or paperwork.
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. Your old stock certificates may not be worth shares of a company anymore, but they may have value as collectors items!
Most companies don’t issue stock certificates. Even the Walt Disney Company stopped issuing their collectible stock certificates in 2013. Many investors recall receiving their first share of stock in the form of a Disney stock certificate.
Instead of receiving stock certificates, your broker or electronic brokerage will send you account statements that list the stocks you own.
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Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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