An investor is issued a share certificate, also known as a stock certificate, when they buy shares of a publicly-traded company. The share certificate serves as a receipt for the stock purchase. The certificate includes important details about the investor’s stock ownership such as the number of shares purchased. But exactly how important is it to hold a stock certificate and does the investor still own the stock if it is lost?
Lost or Stolen Stock Certificates
Brokerage firms, banks, transfer agents and corporations have procedures in place to help investors replace lost or stolen certificates.
If your securities certificate is lost, accidentally destroyed, or stolen, you should immediately contact the transfer agent and request a “stop transfer” to prevent ownership of the securities from being transferred from your name to another’s. Your broker may be able to assist you with this process and the broker or transfer agent will report the certificates as missing to the SEC’s lost and stolen securities program. If you later find the missing certificate, you should notify whomever you called to place the “stop transfer” so that the lost or stolen securities report may be removed. Otherwise, you may have difficulty selling the securities.
If you are expecting a certificate through the mail and it doesn’t arrive, you should immediately contact the organization that arranged the transaction — typically your brokerage firm. While many companies choose to use registered or certified mail to deliver securities certificates to individuals, some prefer to use regular mail so as not to call attention to the potential value of the item.
Are Stock Certificates Necessary to Prove Ownership?
In most cases, investors never receive a physical share certificate as the process is managed electronically by the Central Securities Depository (CSD).
Electronic share transactions and processes enable automated proxy voting, dividend distributions, and other pertinent notifications for the shareholder.
Even without a physical share certificate, a stock owner is still the owner of the stock and party to all the rights to being a shareholder. The owners will receive dividend payments and other notices.
Replacing a Stock Certificate
In some cases, however, an investor may choose to hold a physical share certificate, which details their share ownership. A share certificate can be replaced if it is lost, stolen, or damaged. In order to replace the physical certificate, the shareholder will need to contact the company’s stock transfer agent.
The corporation’s investor relations department should be able to provide a shareholder with information on how to contact the transfer agent. A transfer agent records the shareholders of a company and how many shares an investor owns, the stock certificate numbers, and the contact information for the stock owner.
If you find an old stock certificate, perhaps in a deceased relative’s belongings, and even though the company may no longer exist, it is still worth looking into as the company may have been bought by an existing company and worth a certain amount.
Once the transfer agent is notified of the loss, the agent will place a “stop transfer” on the certificate to prevent others from cashing the certificate in if it is found. The stop-transfer is much like the stop payment that an individual might place on a check at their bank. The transfer agent will also notify appropriate parties to alert them that the certificate has been lost.
Steps the Shareholder Must Follow if a Certificate Is Lost
Each company’s procedures may vary. However, there are some steps that the shareholder must follow. First, the shareholder must describe the loss and any facts surrounding the loss in an affidavit. Second, the shareholder may be required to purchase an indemnity bond. The purpose of the bond is to protect the corporation and the agent in case the lost certificate is somehow redeemed by another party at a later date. (Think of it simply as additional insurance.)
When the necessary information has been provided and the necessary steps are taken, a new certificate will be issued.
