How to Distribute Stock Certificates to Investors

What is a stock certificate?

A stock certificate is a physical document that serves as legal proof of ownership in a corporation. These documents contain essential information that establishes an individual’s rights as a shareholder and provides the details necessary for transferring or selling their shares.

Every authentic stock certificate includes specific components that validate its legitimacy. The shareholder's name appears prominently on the certificate, along with how much stock they own and the type of stock (common stock or preferred stock). The certificate also displays the company's official name, the date the shares were issued, and a unique identification number called a CUSIP (Committee on Uniform Securities Identification Procedures) number.

The document must bear the signature of an authorized company officer, typically the president or secretary, along with the corporate seal embossed on the paper. Many certificates feature intricate designs, elaborate borders, and even artistic elements—Disney certificates famously included colorful depictions of beloved characters, making them popular for framing and display.

These certificates were printed on high-quality paper with security features similar to currency to prevent counterfeiting. The craftsmanship often reflected the company's brand identity, with some certificates considered works of art in their own right.

Paper stock certificates vs. electronic shares

Electronic shares dominate today's investment landscape for compelling practical reasons. Trading electronic shares happens instantly through a broker, eliminating the delays associated with physically mailing paper stock certificates. This speed enables investors to respond quickly to market changes and execute trades when opportunities arise. The Direct Registration System (DRS) used by most public companies maintains accurate records of share ownership without the risk of lost or stolen certificates.

Electronic shares also eliminate the fees associated with obtaining, replacing, or transferring paper certificates. Most brokers charge $50 to $500 for issuing paper certificates, while electronic transfers typically cost nothing. The administrative burden disappears as well—no need to store certificates safely, worry about damage, or complete complex paperwork for routine transactions.

Still, many investors choose to request paper stock certificates for a number of reasons. They provide tangible proof of the investment that can be held, displayed, or stored in a safe deposit box. This appeals to investors who prefer having something concrete rather than relying solely on electronic records.

Paper certificates are also known for their ornate designs and some serve as collectibles, with vintage certificates from famous companies or defunct businesses commanding significant premiums among collectors. The hobby of collecting old stock certificates has created a market where rare certificates can sell for hundreds or even thousands of dollars, regardless of their underlying stock value.

For gift-giving purposes, framed stock certificates create meaningful presents that symbolize investment in someone's future. Parents and grandparents often appreciate the educational value of giving children their first share of stock in a recognizable company.

How to issue stock certificates

You’ll need to issue a paper stock certificate if one of your investors requests one. The exact steps you need to take may differ depending on the requirements in your state, but generally speaking, the process is a simple one.

Step 1: Authorize the issuance of shares

If your investor is requesting a stock certificate upon purchasing their shares, you’ll need to take the typical steps associated with issuing shares in your company. These rules are typically set forth in your company’s articles of incorporation and bylaws.

Step 2: Prepare the certificates

If your company doesn’t already have its own paper certificates for stock distributions, basic fill-in-the-blank forms can be obtained from office supply stores and other online or brick-and-mortar sources. These forms should come pre-formatted with black lines or spaces for the following required information:

• The investor’s name
• The name of your corporation
• The number of shares and class (like common stock, preferred stock, or restricted stock) of shares issued
• The issue date
• Certificate number
• Authenticity seal
• Signature of company president or other authorized officer

Step 3: Record the issuance 

In most cases, you’ll already have a record of the issuance that was created when the initial electronic stock purchase occurred. Still, if your company isn’t in the habit of distributing paper certificates often, it can be helpful to have a record of the transaction as part of your general bookkeeping.

Step 4: Deliver the certificates

Stock certificates should be sent via certified mail and tracked to confirm delivery. Otherwise, you risk having to issue a replacement for a lost stock certificate sometime in the future.

Stock certificates FAQs

Are paper stock certificates still valid?

Yes, paper stock certificates remain legally valid proof of ownership regardless of when they were issued. Even if the company no longer issues new paper certificates, existing ones retain full legal standing and can be transferred, sold, or converted to electronic form through the company's transfer agent.

The validity of a certificate depends on the authenticity of the document and the current status of the issuing company. If the company still exists or has been acquired by another entity, the ownership rights remain intact.

Are companies legally required to issue stock certificates?

No, the Securities and Exchange Commission (SEC) does not mandate that corporations send paper stock certificates to investors, but you should still be prepared to issue certificates by request. Many investors still value physical evidence of their ownership stake in the company.

What are the benefits of issuing stock electronically rather than with stock certificates?

Most publicly traded companies no longer offer paper stock certificates. Electronic shares are easier to trade because the broker doesn't have to wait to receive the stock certificate from the investor. Using electronic shares instead of paper certificates also cuts down on tedious paperwork, potentially saving your company time and money.

What are the disadvantages of issuing stock certificates?

While some of your investors may want stock certificates, issuing and distributing them burdens your company because:

• There is tedious clerical work involved in distributing paper certificates.
• You have to ensure the company mails the certificates to the investors who own them.
• You have to ensure the investors sign the certificates.
• You have to keep track of the shares at all times in a ledger book or on a computer.
• Paper stock could be stolen or lost, requiring replacement.
• Investors have to obtain certificates from the company's transfer agent, or from their broker, usually for a fee.

How LegalZoom can help with corporate record-keeping

Maintaining proper corporate records requires attention to detail and compliance with various regulations. LegalZoom's business formation and compliance services help companies establish proper shareholder record-keeping systems from the start, reducing complications that arise when dealing with stock transfers and ownership changes.

Our Business Attorney Plan includes assistance with maintaining corporate records, preparing necessary documentation, and ensuring your business meets ongoing regulatory requirements.

For investors dealing with inherited certificates or complex transfer situations, LegalZoom's network of experienced attorneys can provide guidance on the legal requirements and help navigate the documentation process. We understand that stock certificate issues often arise during estate planning or inheritance situations, and our legal professionals can help ensure these transitions proceed smoothly while protecting your interests.

Ronna L. DeLoe, Esq., contributed to this article.